5th Semester Accounts Notes CU

(9883034569/9330960172)
Corporate Accounting [For B.com 5th Semester ALL]

Contents [For 2022-23]
S. No. Chapters Page Number
1. Syllabus 01 – 01
2. Company – Introduction & Accounting for Shares (10 + 10 = 20)
Issue of Shares (10 Marks) (No Option) 02 – 20
Bonus Shares & Right Shares (in option of underwriting) 21 – 25
)
Employee Stock Option Plan (in option of underwriting) 26 – 31
69
Underwriting (10 marks) (1 option) 32 – 40
45
03
3. Buy back and Redemption of preference shares (10 Marks)
8 83
Redemption of Preference Shares (buyback in option) 41 – 52
(9
Buy Back of Securities (Preference share in option) 53 – 60

S
SE
4. Redemption of debenture (10 Marks) (No Option) 61 – 68

AS
5. Valuation (10 Marks)

CL
Valuation of Goodwill (valuation of shares in option) 69 – 75

A
TI
Valuation of Shares (Valuation of goodwill in option) 76 – 81

O
AL
6. Company Final Accounts (15 Marks) (No Option) 82 –100

BH
7. Company Merger And Reconstruction (15 Marks)

Internal reconstruction (amalgamation in option) 101 –133
Amalgamation, Absorption and Reconstruction 134 –141
8. Honours & General Paper 2019, 2020 & 2021 142 –175
Book Price: ₹ 150

EXPECTED QUESTION PATTERN
CORPORATE ACCOUNTING – HONS & PASS

Group A (5 Question of 10 marks) (3 Question with alternative):
Question 1 (Issue of shares): (Practical)
Question 2 (Underwriting Or ESOP/Bonus Share & Right share): (Practical)
Question 3 (Buyback or Preference Shares): (Practical)
Question 4 (Redemption of Debenture): (Practical)
Question 5 (Valuation of shares Or Valuation of Goodwill): (Practical)
)
69
Group B (1 Question of 15 marks) (1 Question with alternative):
45
Question 6 (Amalgamation or Internal Reconstruction): (Practical)
03
Question 7 (Company Final Accounts): (Practical)883
Note:
(9
No Compulsory Theory
S
SE
Question pattern of 2019 will be followed.

AS
CL
5th Semester: HONS & PASS

A
Subject's Name Marks Course fees:

TI
Corporate Accounting (All) 100 2,500

O
AL
Taxation II (All) 100 2,500

BH
Auditing & Assurance (All) 100 1,500

Advance Business Mathematics (Hons) 50 1,500
Macro Economics (Hons) 50 1,500
Acct + Tax 200 4,500
All Subjects (Pass) 300 6,000
All Subjects (Hons) 400 7,500
• Admission going on throughout the year but join early to finish early and
then do free revision till exams.
• Online, offline & recorded all options. Offline classes at Girish Park.
Bhalotia Classes (9883034569): Corporate Accounting (5th Sem)
CORPORATE ACCOUNTING:
Internal Assessment: 20 marks
Semester-end Examinations: 80 marks
Total 100 marks
Unit – I: Company – Introduction And Accounting for Shares & debentures
[10 + 10 Marks] [1 Question with option]
• Meaning of Company; Maintenance of Books of Accounts; Statutory Books; Annual Return
• Issue of Shares – issue, forfeiture, reissue, issue other than in cash consideration and issue to the promoters;
Pro-rata issue of shares. Issue of debentures. Sweat equity.
• Right and Bonus Share – Rules, Accounting
• Underwriting of shares and debentures: Rules; Determination of Underwriters Liability – with marked,
• unmarked & firm underwriting; Accounting.
• Employee Stock Option Plan – meaning; rules; Vesting Period; Exercise Period. Accounting for ESOP.
Meaning and Accounting of ESPS.
9)
Unit – 2: Buy back and Redemption of preference shares [1 Question with option]
6
• Buy Back of Securities – meaning, rules and Accounting.
45
• Redemption of Preference Shares – Rules and Accounting (with and without Bonus Shares)
03
Unit – 3: Company Final Accounts [15 Marks] [1 Question of 15 Marks] [no option]
3
Introduction to Schedule III; Treatment of Tax; transfer to reserve, Dividend and applicable tax (out of current profit,
88
out of past reserve); Preparation of Statement of Profit & Loss and Balance Sheet. (tax on net profit without
recognizing deferred tax)
(9
S
Unit – 4: Redemption of debenture [10 Marks] [No option]

SE
Redemption of Debenture – Important Provisions, Accounting for Redemption: by conversion, by lot, by purchase in
the open market (cum and ex-interest), held as Investment and Use of Sinking Fund
AS
Unit – 5: Valuation [10 Marks] [1 Question with option]

CL
• Goodwill – valuation using different methods, i.e., Average Profit, Super Profit, Capitalisation and Annuity.
A
• Shares – Valuation using different methods: Asset approach, Earnings approach, Dividend Yield, Earnings-
TI
Price, Cum-div and Ex-div, Majority and Minority view and Fair Value
O
Unit – 6: Company Merger And Reconstruction [1 Question of 15 Marks] [with option]

AL
• Amalgamation, Absorption and Reconstruction– Meaning; relevant standard and meaning of different
BH
terms, Accounting in the books of Transferor Company. Accounting in the books of Transferee (based on
relevant accounting standard); inter-company transactions (excluding inter-company shareholding).
• Internal reconstruction – meaning, provisions and Accounting, Surrender of Shares for redistribution;
preparation of Balance Sheet after reconstruction
Relevant Accounting Standards issued by the Institute of Chartered Accountants of India are to be
followed.
- 1 –Admission Going on for Regular/Crash Course for B.com. Call

Issue of Shares [10 Marks]

1. Categories of Share Capital
Categories of Share Capital
2. Over Subscription of Shares
9)
When the number of shares applied for, is more than the number of shares offered for subscription,
6
45
the shares are said to be oversubscribed. Allotment of shares cannot be made to all the applicants in
03
full.
3
In case of oversubscription, following three alternatives are available
88
(a) Rejection of applications
(9
(b) Partial or pro-rata allotment

S
SE
(c) Combination of pro-rata allotment and rejection

AS
3. Under Subscription of Shares

CL
When the number of shares applied for, is less than the number of shares offered to the public, the
A
TI
shares are said to be under subscribed.

O
AL
4. Calls-in-arrears
BH
It may happen that shareholders do not pay the call amount on due date. When any shareholder fails
to pay the amount due on allotment or on any of the calls, such amount is known as ‘Calls in
Arrears’. Calls in Arrears represent the debit balance of all the calls account.
Calls in Arrears A/c….. Dr.
To Share First Call Account A/c
To Share Second and Final Call Account A/c
(Calls in arrears brought into account)

5. Calls-in-advance
Sometimes shareholders pay a part or the whole of the amount of the calls not yet made. The amount
so received from the shareholders is known as “Calls in Advance”.
The following journal entry is recorded for the amount of calls received in advance.
Bank A/c…….. Dr.
To Calls in Advance A/c
(Amount received on call in advance)
6. Forfeiture of Shares
Forfeiture of shares means cancellation of shares and seizure of the amount received from the
defaulting shareholders, whose shares have been forfeited. The balance of shares forfeited account is
9)
shown as an addition to the total paid-up capital of the company under the head ‘Share Capital’ under
6
title ‘Equity and Liabilities’ of the Balance Sheet till the forfeited shares are reissued.
45
03
7. What is meant by pro-rata allotment of shares?
3
88
In the case of over subscription, it is not possible to allot shares to all applicants. Applicants may be
(9
allotted less number of shares than they have applied for. This type of allotment of shares is known
S
SE
as pro-rata allotment of shares, e.g. if company allots 50,000 shares to applicants of 75,000 shares, it
AS
is pro-rata allotment in proportion of 2 : 3.

CL
8. Issue of Shares for Consideration other than Cash

A
TI
There are instances where a company enters into an arrangement with the vendors from whom it has
O
AL
purchased assets, whereby the latter agrees to accept, the payment in the form of fully paid shares of
BH
the company issued to them. Number of shares to be issued= Amount Payable /Issue Price
9. Issue of Shares at a Discount

The difference between the nominal value and issue price representing discount on the issue of
shares. For example, when a share of the nominal value of Rs. 100 is issued at Rs. 98, it is said to
have been issued at a discount of two per cent.
As a general rule, a company cannot ordinarily issue shares at a discount. It can do so only in cases
such as ‘reissue of forfeited shares’ and issue of sweat equity shares.

10. Accounting Treatment for Issue of Equity Shares for Cash
(a) Application Money Received:
Bank A/c ……….Dr.
To Equity Share Application A/c
(Amount received on application for — shares @ ₹ ______ per share)
(b) For Transfer of Application Money

Equity Share Application A/c…… Dr.
To Equity Share Capital A/c
To Securites Premium A/c
(Application money on _____ Shares allotted transferred to Share Capital & Premium as per
6 9)
board’s resolution no. …. Dated………)
45
03
(c) For Money Refunded on Rejected Application
3
88
Equity Share Application A/c…….. Dr.
(9
To Bank A/c
S
(Application money returned on rejected application for ___shares)

SE
AS
(d) For Amount Due on Allotment

CL
Equity Share Allotment A/c……… Dr.

A

TI
O
To Securites Premium A/c

AL
(Allotment money on _____ Shares allotted transferred to Share Capital & Premium as per
BH
board’s resolution no. …. Dated………)
(e) For Adjustment of Excess Application Money

Equity Share Application A/c……. Dr.
To Equity Share Allotment A/c
(Application Money on __Shares @ ₹__per shares adjusted to the amount due on allotment).

(f) For Receipt of Allotment Money
Bank A/c………… Dr.
Calls in arrear …… Dr
To Equity Share Allotment A/c
(Being Allotment money received on ___Shares @ ₹ — per share)
(g) For 1st Call Amount Due

Equity Share 1st Call A/c….. Dr.
(1st Call money due on ___Shares @ ₹ ____ /share as per board’s resolution no. ….
Dated………)
6 9)
45
(h) For Receipt of 1st Call Amount
03
Bank A/c ………Dr.
3
88
(9
To Equity Share 1st Call A/c
S
(1st Call money received)

SE
AS
(i) For Final Call Amount Due

CL
Equity Share Final Call A/c….. Dr.

A

TI
O
(Final Call money due on ___Shares @ ₹ ____ /share as per board’s resolution no. ….
AL
Dated………)
BH
(j) For Receipt of Final Call Amount

Bank A/c …………Dr.
To Equity Share Final Call A/c
(Final Call money received)

(k) Forfeiture of Shares Originally Issued at Par
Equity Share Capital A/c ………..Dr (Called-up Capital)
To Forfeited Shares A/c (Amount received)
To Calls in arrear A/c (Amount not received)
(Being forfeiture of…… shares as per board’s resolution no. …. Dated………)
(l) Forfeiture of Shares Originally Issued at Premium and Premium was Received
To Forfeited Shares A/c (Amount received excluding premium)
6 9)
45
(m) Forfeiture of Shares Originally Issued at Premium and Premium was not Received
03
Securities Premium A/c….. Dr
3
(Unpaid premium)
88
(9
S
SE

AS
CL
(n) Re-issue of forfeited shares at par

A
Bank A/c ………. Dr

TI

O
AL
(Being reissue of …… shares at par as per board’s resolution no. …. Dated………)

BH
(o) Re-issue of forfeited shares at discount,

Bank A/c ………. Dr [With the amount received on re-issue]
Share Forfeiture A/c ………. Dr [With the discount allowed on re-issue]
To Equity Share Capital A/c [With the amount credited as paid-up]
[The amount of discount allowed on the re-issue of forfeited shares must not exceed the
amount forfeited on re-issued shares]

(p) Re-issue of forfeited shares at Premium
Bank A/c ………. Dr [With the amount received on re-issue]
To Equity Share Capital A/c [With the amount credited as paid-up]
To Securities Premium A/c [Re-issued price – paid up value]
(q) Transfer of Profit on re-issued shares:

Forfeited Shares A/c …………Dr
To Capital Reserve A/c
(Being Profit on re-issued shares transferred to capital reserve account)
9)
(r) Issue of Shares to Promoters
6
45
Formation Expenses/Goodwill A/c…………Dr
03
3
(Being … share of … each issued to promoters of the company)
88
(9
(s) Purchase of Assets from Vendor in considerartion other than cash:

S
SE
Assets A/c (Individually) …………Dr.

AS
Goodwill A/c ………………………Dr.

CL
[If Amount of Purchase consideration exceeds Net Assets taken over]

A
To Liabilities (Individually)
TI
To Vendor [Amount of purchase consideration]

O
AL
To Capital Reserve A/c [If Purchase consideration is less than Net Assets taken over]
BH
(Being assets & Liabilites purchased from vendor)
(t) Issue of shares to vendor:

Vendor …………Dr [Amount of purchase consideration]
Discount of issue on shares/Debentures ……..Dr [if issued on discount]
To Equity Share Capital A/c [Paid up value]
To Securities Premium A/c [if issued on Premium]
(Being issue of shares to vendor)

Practical Questions:
1. Issue of shares [Pro-rata Allotment] [2002/2013/2019]*******

X Ltd. offered 10,000 equity shares of ₹ 10 each for subscription at a premium of ₹ 2 per share
payable as follows:
On application ₹ 2
On allotment ₹ 5 (including premium)
On first call ₹ 2
On final call ₹ 3
The company received applications for 15,000 shares and allotment was made pro rata to the
applicants of 12,000 shares, the remaining applications being refusal. The excess application money
9)
was adjusted on account of sums due on allotment. Kapil to whom 500 shares were allotted failed to
6
45
pay the allotment money and on his subsequent failure to pay the first call money his shares were
03
forfeited. Srinath who originally applied for 240 shares failed to pay the two calls and his shares were
3
forfeited after the final call. Subsequently, out of these forfeited shares 600 shares (including all
88
shares of Kapil) were re-issued to Sharma as fully paid up at ₹ 9 per share. Show the Journal entries
(9
to record the above transactions.

S
SE
AS
CL
A
TI
O
AL
BH

Solution:
In the Books of X Ltd.
Journal Entries
Dr. Cr.
Date Particulars L. Amount Amount
F (₹) (₹)
Bank A/c ………………………………………..Dr. 30,000
To Equity Share Application A/c 30,000
(Being amount received on application for 15,000 equity
shares @ ₹ 2 per share)
Equity Share Application A/c ……………………Dr. 30,000
To Equity Share Capital A/c (10,000 shares @ ₹ 2) 20,000
6 9)
To Equity Share Allotment A/c (2,000 shares @ ₹ 2) 4,000
45
To Bank (3,000 shares @ ₹ 2) 6,000
03
(Being Application money on 10,000 Shares transferred to
3
88
Share Capital, Application money on 2,000 shares
(9
transferred to Allotment and Application money returned

S
SE
for 3,000 shares as per board’s resolution no.…. Dated……)

AS
Equity Share Allotment A/c ……………………….…Dr. 50,000

CL
To Equity Share Capital A/c 30,000

To Securites Premium 20,000
A
TI
(Allotment money on 10,000 Shares allotted transferred to

O
AL
Share Capital & Premium as per board’s resolution no….

Dated………)
BH
Bank A/c ………………………………………..Dr. 43,700

Calls in Arrear A/c ……….……………………..Dr. 2,300
To Equity Share Allotment A/c 46,000
(Being amount received on Allotment on 9,500 shares and
unpaid amount on 500 shares transferred to calls in arrear
A/c) (₹ 50,000 – ₹ 4,000)

Equity Share 1st Call A/c ……………………….…Dr. 20,000
(1st Call money on 10,000 Shares @ ₹ 2/share transferred
to Share Capital as per board’s resolution no…….
Dated………)
Bank A/c ………………………………………..Dr. 18,600
To Equity Share 1st Call A/c 20,000
st
(Being amount received on 1 call money on 9,300 shares
and unpaid amount on 700 shares transferred to calls in
arrear A/c)
9)
6
3,500
45
(500 shares @ ₹ 7)
03
Securities Premium A/c…………. Dr (Unpaid premium) 1,000
3
(500 shares @ ₹ 2)
88
(9
To Forfeited Shares A/c (Amount received) 1,200
S
3,300
SE
(Being forfeiture of 500 shares as per board’s resolution

AS
no. …. Dated………) (Refer working note iii)

CL
Equity Share Final Call A/c ……………………….…Dr. 28,500

A

TI
O
(Final Call money on 9,500 Shares @ ₹ 3/share

AL
transferred to Share Capital as per board’s resolution

BH
no……. Dated………)
Bank A/c ………………………………………..Dr. 27,900
Calls in Arrear A/c ……….……………………..Dr. 600
To Equity Share Final Call A/c 28,500
(Being amount received on final call money on 9,300
shares and unpaid amount on 200 shares transferred to
calls in arrear A/c)

Equity Share Capital A/c ………..Dr (Called-up Capital) 2,000
(200 shares @ ₹ 10)
To Forfeited Shares A/c (Amount received) 1,000
To Calls in arrear A/c (Amount not received) 1,000
no. …. Dated………) (Refer working note iv)
Bank A/c (600 shares @ ₹ 9)………………… Dr 5,400
Forfeited Shares A/c (600 shares @ ₹ 1) ……..Dr 600
To Equity Share Capital A/c (600 shares @ ₹ 10) 6,000
(Being reissue of 600 shares of ₹ 10 each at a discount of ₹
1 as per board’s resolution no. …. Dated………)
6 9)
Forfeited Shares A/c …………Dr 1,100
45
To Capital Reserve A/c 1,100
03
(Being Profit on re-issued shares transferred to capital
3
88
reserve account) (Refer working note vi)
(9
S
Working Notes:
SE
(i) Application Received 15,000 shares

AS
Less: Application considered for Pro-rata 12,000 shares

CL
Application Rejected 3,000 shares

A
TI
Application Money refunded on 3,000 shares @ ₹ 2 each = ₹ 6,000

O
AL
(ii) Application considered for Pro-rata 12,000 shares

BH
Shares Alloted 10,000 Shares

Excess Application Money on 2,000 shares @ ₹ 2 each = ₹ 4,000 adjusted with allotment
money due.
Pro-rata Allotment = 12,000 : 10,000 = 6 : 5 (i.e. 5 shares alloted for every 6 shares applied)

(iii) Kapil:
Alloted = 500 shares
Applied = 500 x 6/5 = 600 shares
Allotment money due on 500 shares = 500 shares x ₹ 5 = ₹ 2,500
Less: Excess Application Monery = 100 shares x ₹ 2 = ₹ 200
Calls in arrear at the time of allotment = ₹ 2500 – ₹ 200 = ₹ 2,300
Calls in arrear at the time of 1st call = 500 shares x ₹ 2 = ₹ 1,000
Total Calls in arrear to be credited at the time of forfeiture = ₹ 3,300
Total Amount received to be forfeited = 600 shares x ₹ 2 = ₹ 1,200
9)
(iv) Srinath:
6
Applied = = 240 shares
45
03
Alloted = 240 x 5/6 = 200 shares
3
Calls in arrear at the time of 1st call = 200 shares x ₹ 2 = ₹ 400
88
Calls in arrear at the time of Final call = 200 shares x ₹ 3 = ₹ 600
(9

S
SE

AS
CL
(v) Amount Forfeited:

A
Kapil (500 shares) = ₹ 1200

TI
Srinath (200 Shares) = ₹ 1,000

O
AL
BH
(vi) Amount to be Transferred to capital Reserve on Re-issued Shares:

Kapil (500 shares r-issued), Amount Forfeited = ₹ 1200
Srinath (100 shares re-issued), Amount forfeited = ₹ 500
(1000/200) x 100
Total ₹ 1700
Less: Discount on re-issue (600 Shares x ₹ 1) ₹ 600
Transfer to capital Reserve ₹ 1,100

2. Issue of shares [Pro-rata Allotment] [5sem 2019 Hons]****
Sunshine Ltd. issued 50,000 Equity shares of ₹ 10 each at a premium of 20% payable as ₹ 3 on
application, ₹ 6 on allotment (including premium) and the balance in one call after 3 months from
allotment. Applications were received for 80,000 equity shares. Allotment was made pro-rata to the
applicants for 75,000 equity shares, the remaining applications being rejected. Excess money on
application (eligible for allotment) was adjusted with allotment. Sourav, to whom 400 equity were
allotted, failed to pay the allotment and call money. Rahul, who applied for 750 equity shares, failed to
pay call money. These shares were subsequently forfeited and all the shares of Sourav and 50% shares
of Rahul were reissued at a discount of 10% to Sachin as fully paid up. Show the necessary journal
entries (narrations required) in the books of the company.
Solution:
9)
In the Books of Sunshine Ltd.
6
45
Journal Entries
Dr. Cr.
03
3
88
F (₹) (₹)
(9
Bank A/c ………………………………………..Dr. 2,40,000
S
To Equity Share Application A/c 2,40,000

SE
(Being amount received on application for 80,000 equity

AS
shares @ ₹ 3 per share)

CL
Equity Share Application A/c ……………………Dr. 2,40,000

A
To Equity Share Capital A/c (50,000 shares @ ₹ 3) 1,50,000

TI
O
To Equity Share Allotment A/c (25,000 shares @ ₹ 3) 75,000

AL
To Bank (5,000 shares @ ₹ 3) 15,000

BH
(Being Application money on 50,000 Shares transferred to
Share Capital, Application money on 25,000 shares

transferred to Allotment and Application money returned
for 5,000 shares as per board’s resolution no.…. Dated……)

Equity Share Allotment A/c ……………………….…Dr. 3,00,000
To Equity Share Capital A/c (50,000 shares x 4) 2,00,000
To Securites Premium (50,000 shares x 2) 1,00,000
(Allotment money on 50,000 Shares allotted transferred to
Share Capital & Premium as per board’s resolution no….
Dated………)
Bank A/c ………………………………………..Dr. 2,23,200
To Equity Share Allotment A/c 2,25,000
(Being amount received on Allotment on 49,600 shares
and unpaid amount on 400 shares transferred to calls in
6 9)
arrear A/c) (₹ 3,00,000 – ₹ 75,000)
45
Equity Share First & Final Call A/c ……………………….…Dr. 1,50,000
03
To Equity Share Capital A/c 1,50,000
3
88
(First & Final Call money on 50,000 Shares @ ₹ 3/share
(9
transferred to Share Capital as per board’s resolution
S
no……. Dated………)
SE
Bank A/c ………………………………………..Dr. 1,47,300

AS

CL
To Equity Share First & Final Call A/c 1,50,000

A
(Being amount received on First & Final call money on

TI
O
49,100 shares and unpaid amount on 900 shares transferred

AL
to calls in arrear A/c)

BH
Equity Share Capital A/c ………..Dr (900 shares @ ₹ 10) 9,000

Securities Premium A/c…………. Dr (Unpaid premium)
(400 shares @ ₹ 2) 800
To Calls in arrear A/c (Amount not received) 5,300
4,500
no. …. Dated………) (Refer working note iii)

Bank A/c (650 shares @ ₹ 9)………………… Dr 5,850
Forfeited Shares A/c (650 shares @ ₹ 1) ……..Dr 650
To Equity Share Capital A/c (650 shares @ ₹ 10) 6,500
(Being reissue of 650 shares of ₹ 10 each at a discount of ₹
1 as per board’s resolution no. …. Dated………)
Forfeited Shares A/c …………Dr 2,900

(Being Profit on re-issued shares transferred to capital
reserve account) (Refer working note vi)
Working Notes:
(i) Application Received 80,000 shares
6 9)
Less: Application considered for Pro-rata 75,000 shares
45
Application Rejected 5,000 shares
03
Application Money refunded on 5,000 shares @ ₹ 3 each = ₹ 15,000
3
88
(9
(ii) Application considered for Pro-rata 75,000 shares

S
SE
Shares Alloted 50,000 Shares

AS
Excess Application Money on 25,000 shares @ ₹ 3 each = ₹ 75,000 adjusted with allotment
CL
money due.
Pro-rata Allotment = 75,000 : 50,000 = 3 : 2 (i.e. 2 shares alloted for every 3 shares applied)
A
TI
O
AL
(iii) Sourav:
BH
Alloted = 400 shares

Applied = 400 x 3/2 = 600 shares
Allotment money due on 400 shares = 400 shares x ₹ 6 = ₹ 2,400
Less: Excess Application Monery = 200 shares x ₹ 3 = ₹ 600
Calls in arrear at the time of allotment = ₹ 2400 – ₹ 600 = ₹ 1,800
Calls in arrear at the time of call = 400 shares x ₹ 3 = ₹ 1,200

(iv) Rahul:
Applied = = 750 shares
Alloted = 750 x 2/3 = 500 shares
Calls in arrear at the time of call = 500 shares x ₹ 3 = ₹ 1,500
(v) Amount Forfeited:

Sourav (400 shares) = ₹ 1800
Rahul (500 Shares) = ₹ 3,500
Total amount forfeited = ₹ 5,300
6 9)
(vi) Amount to be Transferred to capital Reserve on Re-issued Shares:
45
03
Sourav (400 shares r-issued), Amount Forfeited = ₹ 1800
3
Rahul (250 shares re-issued), Amount forfeited =
88 ₹ 1,750
(3500/500) x 250
(9
Total ₹ 3,550
S
SE
Less: Discount on re-issue (650 Shares x ₹ 1) ₹ 650

AS
Transfer to capital Reserve ₹ 2,900

CL
A
TI
O
AL
BH

3. Forfeiture and re-issue of shares

A Ltd. issued 1,000 Equity Shares of ₹ 15 each. The share money was payable as follows:
(i) ₹ 5 per share on Application;
(ii) ₹ 7 per share (including ₹ 2 per share as premium) on Allotment;
(iii) ₹ 5 per share on First and Final Call.
Mr. Das who held 40 shares failed to pay the allotment and call money. Mr. Dey who held 100 shares
failed to pay the call money. The Directors forfeited all these shares. Thereafter, these shares were
reissued as fully paid up @ ₹ 13 each. Pass the necessary Journal entries
[Amount of Capital Reserve ₹ 920 (without crediting Securities Premium A/c on re-issue)]
9)
4. Forfeiture and re-issue of shares [2012 Pass]
6
Zindal Ltd. issued 8,000 equity shares of ₹ 10 each payable as ₹ 3 per share an application, ₹ 5 per
45
share in allotment (including ₹ 2 each as premium) and ₹ 4 per share on call. All the shares were
03
subscribed. Money due on all shares was fully paid excepting Mr. A holding 50 shares who failed to
3
88
pay the allotment money and call money and Mr. B holding 100 shares who failed to pay the call
(9
money. All these 150 shares were forfeited. Out of the forfeited shares, 125 shares including all of
S
Mr. A were reissued at ₹ 8 per share. Show necessary Journal Entries in the books of the company.
SE
AS
5. Forfeiture and re-issue of shares

CL
P. Ltd. having an Authorised Capital of ₹ 1,00,000 divided into 1,000 Equity Shares of ₹ 100 each
A
payable as ₹ 20 per share on application, ₹ 30 per share on allotment (including ₹ 10 per share as
TI
premium), ₹ 20 per share on first call and the balance on final call, issued 500 of the shares which
O
AL
were duly subscribed for. Application and allotment moneys were paid on all shares. On first call,
BH
one shareholder Mr. X holding 50 shares, failed to pay the first call money. His shares were duly
forfeited after the first call and 30 of these shares were subsequently re issued to Mr. Y at ₹ 50 per
share as ₹ 60 per share paid up. After that final call was made. Final call money received on all the
shares. Journalise the above transactions.
[Amount of Capital Reserve ₹ 900; Balance of Share Forfeiture A/c ₹ 800]

6. Issue of shares [Pro-rata Allotment] [5sem 2020 Hons]****
Care Ltd. invited applications for 10000 shares of ₹ 10 each at 10% premium payable as – on
application ₹ 4; on allotment ₹ 3 (including premium) and balance on one call. Applications were
received for 17000 shares and after rejecting applications for 1000 shares the company issued all the
shares on proportionate basis. All amount due was received except the following :
i. Mr. A holding 500 shares failed to pay allotment and call money.
ii. Mr. B holding 400 shares failed to pay call money.
All these shares were forfeited after call. All forfeited shares were re-issued to Mr. C as fully paid @
₹ 8 per share. Show necessary journal entries (including cash transactions) in the books of Care Ltd.
(Narrations not required)
7. Issue of shares [Pro-rata Allotment] [5sem 2020 Pass]****

The directors of Finolex Ltd. have invited an application for 30,000 equity shares of ₹ 10 each to be
9)
issued at 20% premium. The money payable on the shares are as follows :
6
45
On application : ₹ 6 per share (including premium of ₹ 2);
03
On allotment : ₹ 4 per share;
3
On call: Balance amount. 88
Applications were received for 40,000 shares and allotment was made pro-rata amongst the applicants.
(9
All the shareholders paid their dues within the due time except Miss Ritika, applied for 400 shares,
S
SE
failed to pay the allotment money. Her shares were forfeited after the subsequent call.
AS
200 forfeited shares were reissued as fully paid on payment of ₹ 8 per share to Miss Ankita.
CL
Show the necessary journal entries (including cash transaction) in the books of Finolex Ltd.
8. Issue of shares [Pro-rata Allotment] [5sem 2019 Pass]****

A
TI
The directors of KPL Industries Ltd. have invited application for 72,000 Equity Shares of ₹ 10 each to
O
be issued at 20% premium. The money payable on shares is as follows:

AL
01.05.18: On application ₹ 2
BH
01.06.18: On allotment ₹ 5 (including premium of ₹ 2)

01.01.19: First and Final Call ₹ 5
Applications were received for 90,000 shares and allotment was made pro-rata to the applicants. All
shareholders are paid their dues within the due time except Mr. Ranjit, to whom 3,600 shares were
allotted, failed to pay the allotment and call money. His shares are forfeited fulfilling the statutory
provisions. Subsequently these shares are re-issued to Animesh as fully paid shares at ₹ 8 per share on
01.03.19. Show the necessary journal entries (including cash transaction)

9. Issue of shares [Pro-rata Allotment] [Honours 2000] **
Cripton Ltd. invited applications for the issue of 50,000 equity shares of ₹ 10 each at a premium of ₹ 5 per
share payable as under:
On application ₹ 3 per share
On allotment ₹ 6 per share (including premium)
On first call ₹ 3 per share
On final call ₹ 3 per share
Applications were received for 90,000 shares and allotment was made pro rata to the applicants of 75,000
shares. Antasri to whom 200 shares were allotted, failed to pay the allotment and first call money, and her
shares were forfeited after the first call. Naresh to whom 600 shares were allotted, failed to pay the two calls,
and his shares were forfeited after the final call. Subsequently, 500 of the forfeited shares (including all the
9)
shares of Antasri) were re-issued to Anup as fully paid at ₹ 9 per share.
6
Show the Journal entries to record the above transactions.
45
[Transfer to capital reserve after re-issue ₹ 1,500]
3 03
88
10. Issue of shares [Pro-rata Allotment] [Honours 2016]*****
(9
Bengal Ltd. was registered with an authorised capital of ₹ 5, 00,000 divided into 30,000 Equity Shares of ₹
S
SE
10 each and 4,000, 10% Preference Shares of ₹ 50 each. The company made an issue of 15,000 Equity Shares
AS
at a premium of ₹ 5 per share payable as follows:

CL
On application ₹ 5 per share (including ₹ 2 as premium)

On allotment ₹ 6 per share (including ₹ 3 as premium)
A
TI
On first call ₹ 2 per share

O
On final call Balance

AL
Applications were received for 24,000 shares. No allotment was made to the applicants of 4,000 shares and the
BH
amount received thereon was refunded. The rest of the applicants were issued shares on pro – rata basis. Mr. A
who had applied for 120 shares failed to pay allotment and call moneys. Mr. B who had applied for 80 shares
failed to pay two calls and Mr. C to whom 45 shares were allotted failed to pay the final call money. Shares of
Mr. A, Mr. B and Mr. C were forfeited after the final call was made. 160 of the forfeited shares (including
whole of A and Balance of B) were reissued to Mr. D at ₹ 12 per share.
Show the Journal entries in the books of the Company.

11. Issue of shares [Pro-rata Allotment] [Hons 2003, 2018,
2021***]
Adino Television Co. Ltd. invited applications for 20,000 of its equity shares of ₹ 10 each at a
premium of ₹ 2 per share, payable ₹ 3 on application, ₹ 7 on allotment (including premium) and the
balance on first and final call. Applications for 25,000 shares were received. It was decided to:
(a) refuse allotment to the applicants for 1,000 shares;
(b) allot in full to the applicants for 4,000 shares;
(c) allot the balance of the available shares pro rata among the other applicants; and
(d) utilise excess application money in pan payment of allotment money.
Mr. X holding 200 shares to whom shares had been allotted on pro rata basis failed to pay the amount
due on allotment and call. Mr. Y holding 100 shares to whom full allotment was made failed to pay
9)
amount due on call only. These shares were forfeited. 160 forfeited shares of Mr. X and 40 forfeited
6
45
shares of Mr. Y were re-issued at a discount of ₹ 1 per share to Mr. Z.
03
Pass journal entries in the books of the company.
3
[Rate of pro-rate allotment 4: 5; Amount of Capital Reserve ₹ 720; balance Sheet: 239950]
88
(9
12. Issue of shares [Pro-rata Allotment] [2015 Honours]****

S
SE
K Ltd. made an issue of 20,000 Equity Shares of ₹ 10 each at 20% premium, payable as under:
AS
₹ 4 on application, ₹ 5 on allotment (including premium), ₹ 2 on first call and ₹ 1 on final call.

CL
Applications were received for 25,000 shares and allotment was made as follows:
A
a) To applications for 10,000 shares – in full

TI
b) To applications for 9,000 shares – 6,000 shares

O
AL
c) To applications for 6,000 shares - 4,000 shares

BH
Applicants for 200 shares in category (a) and applicants for 150 shares in category (b) failed to pay
the allotment money and these shares were forfeited on their failure to pay the first call money.
Holders of 200 shares under category (c) failed to pay the first and final call money and those shares
were forfeited after final call was made. 300 shares [200 of category (a) and 100 of category (b)]
were re – issued at ₹ 7 per share as fully paid. Show Journal entries in the books of K Ltd.
[Capital Reserve ₹ 500]

Issue of Bonus Shares & Right

Shares [10 Marks]
1. What do you mean by Bonus Shares & Right Shares?
BONUS Bonus issue means a issue of free additional shares to existing shareholders
SHARES A company may issue fully paid-up bonus shares to its shareholders out of—
(i) its free reserves;
(ii) securities premium account; or
(iii) capital redemption reserve account:
Bonus shares should not be issued out of revaluation reserves (i.e., reserves created
9)
by the revaluation of assets)
6
45
RIGHT ISSUE Rights issue is an issue of rights to a company's existing shareholders that
entitles them to buy additional shares directly from the company in
03
proportion to their existing holdings, within a fixed time period.
3
88
(9
2. Journal entries For Bonus to Fully paid up shares
S
(A) Upon the sanction of an issue of bonus shares

SE
Capital Redemption Reserve Account …………………………Dr.

AS
Securities Premium Account ………………………………….Dr.

CL
Capital Reserve (realised in cash) ……………………………..Dr.

A
Specific Reserve (free portion only) …………………………...Dr.

TI
O
General Reserve Account ……………………………………..Dr.

AL
Profit & Loss Account ………………………………………….Dr.

BH
To Bonus to Shareholders Account

(Being provision made for Bonus issue of ……. share for every ……… shares held, by utilising various
reserves as per Board’s resolution dated…….)

(B) Upon issue of bonus shares
Bonus to Shareholders Account………………………………Dr.
To Equity Share Capital Account
To Securities Premium Account (if issued at premium)
(Being bonus shares issued)

3. Journal entries For Bonus to Partly paid up shares
(A) Upon the sanction of bonus by converting partly paid shares into fully paid shares
Capital Reserve (realised in cash) ……………………………..Dr.
Specific Reserve (free portion only) …………………………...Dr.
General Reserve Account ……………………………………..Dr.
Profit & Loss Account ………………………………………….Dr.
To Bonus to Shareholders Account
(Being provision made for Bonus to partly paid-up shares, by utilising various reserves as per Board’s
resolution dated…….)
(B) On Making Final Call Money Due:
Share Final Call Account………………………………Dr.
6 9)
To Equity Share Capital Account
45
(Final call of ₹ …. per share on ……… equity shares due as per Board’s Resolution dated.........)
03
(C) On adjustment of final call
3
Bonus to Shareholders Account………………………………Dr.
88
(9
To Equity Share Final Call Account
S
(Being Final call money adjusted through bonus)

SE
Note:
AS
Capital Redemption Reserve & Securities Premium can’t be used for bonus to partly paid-up shares.
CL
A
4. ACCOUNTING FOR RIGHT ISSUE

TI
The accounting treatment of rights share is the same as that of issue of ordinary shares and the
O
following journal entry will be made:

AL
Bank A/c ………………………………………………..Dr.

BH
To Equity shares capital A/c
In case rights shares are being offered at a premium, the premium amount is credited to the securities
premium account. The accounting entry is usual and is
Bank A/c ………………………………………………..Dr.
To Securities Premium A/c

1. Issue of Bonus Shares [B.com 2015, 2018 Honours]****
The following is the abstracts of Balance Sheet of T Ltd. as on 31.3.2021:
Issued and paid up capital: ₹
20,000 Equity shares of ₹ 10 each
fully paid up 2,00,000
Reserves and Surplus:
Capital Redemption Reserve 40,000
Securities premium 30,000
General Reserve 1, 00,000
9)
Profit & Loss Account 80,000
6
Revaulation Reserve 20,000
45
Development Rebate Resere 10,000
03
At the annual general meeting of the company the following resolutions were passed:
3
88
(i) To issue 2 bonus shares for every five shares hold as on date; and
(9
(ii) To give existing shareholders the option to purchase three ₹ 10 Right shares at ₹ 14 per share
S
for every five shares held before the issue of bonus shares.
SE
All the shareholders took up the option of right shares and bonus shares were dully allotted. Show
AS
appropriate journal entries to record the above transactions in the books of T Ltd.
CL
Solution:
Books of S Ltd.
A
Journal Entries
TI
Dr. Cr.
O

AL
F (₹) (₹)
BH
31.3.2021 Capital Redemption Reserve Account ……………Dr. 40,000

Securities Premium Account ……………………..Dr. 30,000
General Reserve Account (balancing figure)……..Dr. 10,000
To Bonus to Shareholders Account 80,000
(Being bonus issue of two share for every five shares held,
by utilising various reserves as per Board’s resolution
dated…….) (Refer W.Note i)

31.3.2021 Bonus to Shareholders Account ……………….…Dr. 80,000
To Equity Share Capital Account 80,000
(Being capitalisation of Profit)
31.3.2021 Bank (12,000 x ₹ 14)…………………………….…Dr. 80,000

To Equity Share Capital Account (12,000 shares x 10) 1,20,000
To Securities Premium Account (12,000 shares x 4) 48,000
(Being 12,000 right shares were issued @ ₹ 14 each as per
Board’s resolution dated…….) (Refer W.Note ii)
Working Notes:
(i) Number of Bonus Shares to be issued = 20,000 x 2/5 = 8,000 shares @ ₹ 10 each
9)
Amount of Bonus = ₹ 80,000
6
45
(ii) Number of Right shares offered = 20,000 x 3/5 = 12,000 shares @ ₹ 14 each
03
(face value ₹ 10/share, Securities premium = ₹ 4 per share)
3
88
2. Issue of Bonus Shares [B.com 5sem Pass 2020]***
(9
Petro Ltd. provides the following information as on 31.03.2021 :

S
SE
Particulars ₹
AS
1,20,000 equity shares of ₹ 10 each fully paid 12,00,000

CL
Capital Redemption Reserve 3,00,000

A
Plant Revaluation Reserve 40,000

TI
Securities Premium 3,00,000

O
Development Rebate Reserve 4,60,000

AL
Investment Allowance Reserve 5,00,000

BH
General Reserve 6,00,000

On 01.04.2021, the company decided to issue Bonus shares at par to its shareholders at the rate of 1
share for every 2 shares held and right shares at the rate of 1 share for every 4 shares held at ₹ 14 per
shares. Show necessary Journal entries in the books of Petro Ltd. to give effect to above transactions.

3. Issue of Bonus Shares [B.com 5sem Hons 2020]***
Ex Ltd. had ₹ 12,00,000 in Capital Redemption Reserve, ₹ 10,00,000 in Securities Premium and ₹
15,00,000 credit balance in its Statement of Profit & Loss. It issued 20,000 bonus shares of ₹ 100
each as fully paid at par and 5,000 right shares of ₹ 100 each fully paid at ₹ 125 to its shareholders.
A. Ltd. received 1,200 such bonus shares and entitled to 300 right shares, which it accepted.
Show necessary journal entries (without narrations) in the books of Ex Ltd. and in the books of A
Ltd. for the above.
4. Issue of Bonus Shares [B.com 5sem Pass 2019]***

Following is the extracts of Balance sheet of BPA Limited as on 31.03.19:
Share capital:
9)
12,000, 12% preference shares of ₹ 10 each fully paid ₹ 1,20,000
6
80,000 Equity Shares of ₹ 10 each fully paid ₹ 8,00,000
45
Reserve and Surplus
03
Capital Redemption Reserve ₹ 2,50,000
Securities Premium ₹ 1,00,000
3
88
Revaluation Reserve ₹ 1,50,000
(9
General Reserve ₹ 1,00,000
Profit and loss balance (Cr.) ₹ 3,00,000
S
SE
Company has decided in its General Meeting to capitalize its reserve by issue of 1 fully paid bonus
share for every 2 equity shares held after fulfilling the legal formalities. Pass the journal entries to
AS
give the effect of the above decision.

CL
5. Issue of Bonus Shares [B.com Honours]*

A
The authorised capital of X Ltd. is 15,000 Equity Shares of ₹ 10 each. Out of which 8,000 Equity
TI
Shares of ₹ 10 each are fully paid – up and 2,000 Equity Shares of ₹ 10 each have been called and
O
paid – up ₹ 7 per shares. The company has the following Balances:

AL
Particulars ₹
BH
Securities Premium 5,000

General Reserve 18,000
Profit & Loss (Cr.) 47,500
The company has decided in a general meeting to capitalise Securities Premium and General Reserve
in full and part of the Profit & Loss Account is necessary for this purpose by issuing:
(i) Bonus on the partly paid – up shares in order to make them fully paid – up; and
(ii) One bonus share at a premium of ₹ 2 for every two fully paid Equity Shares held.
Show the Journal entries to record the transactions.
[ANS. Fund needed for fully paid – up Bonus shares ₹ 48,000 and for partly paid – up Bonus
Shares ₹ 6,000.]

Employee Stock option Plan

[10 Marks]
1. What is employee stock option plan?
Employee Stock Option Plan:
It is a plan under which the company grants employee stock options. Employee stock option is a
contract that gives the employees of the enterprise the right, but not the obligation, for a specified period
of time to purchase or subscribe the shares of the company at a fixed or determinable price which is
generally lower than the prevailing market price of its shares.
The importance of these plans lies in the following advantages which accrue to both the company and
the employees:
(a) Stock options provide an opportunity to employees to participate and contribute in the
9)
growth of the company.
6
45
(b) Stock options create long term wealth in the hands of the employees.
(c) They are important means to attract, retain and motivate the best available talent for the
03
company.
3
(d) It creates a common sense of ownership between the company and its employees.
88
(9
2. Important terms to be remembered

S
Important terms to be remembered

SE
1. Option: Option means a right but not an obligation granted to an employee for a specified
AS
period of time in pursuance of ESOS to purchase or subscribe to the shares of the company at
CL
a pre-determined price.
A
TI
2. Grant: Grant means issue of option to the employees under ESOS.

O
3. Vesting: It is the process by which the employee is given the right to apply for shares of the
AL
company against the option granted to him in pursuance of employee stock option scheme.
BH
4. Vesting Period: It is the time period between grant date and the date on which all the
specified vesting conditions of an employee share based payment plan are to be satisfied.
5. Exercise Period: It is the time period after vesting within which the employee should exercise his
right to apply for shares against the option vested in him in pursuance of the ESOS.
6. Exercise Price: It is the price payable by the employee for exercising the option granted to
him in pursuance of ESOS.

1. Employee Stock option Plan****
S Ltd. grants 1,000 options to its employees on 1.4.2018 at ₹ 60. The vesting period is two and a half
years. The maximum exercise period is one year. Market price on that date is ₹ 90. All the options were
exercised on 31.7.2021. Journalize, if the face value of equity share is ₹ 10 per share.
Solution:
Books of S Ltd.
Journal Entries
Dr. Cr.
F (₹) (₹)
31.3.2019 Employees Compensation Expense Account……... Dr. 12,000
6 9)
To Employees Stock Option Outstanding Account 12,000
45
(Being compensation expense recognised in respect of
03
1,000 options granted to employees at discount of ₹ 30
3
88
each, amortized on straight line basis over 2½ years)
(9
(Refer W.Note ii)
S
31.3.2019 Profit and Loss Account…………………………………………… Dr 12,000

SE
To Employees Compensation Expense Account 12,000

AS
(Being employees compensation expense of the year

CL
transferred to Profit & Loss A/c)

A
TI

O

AL

BH

(Refer W.Note ii)

(Being balance of compensation expense amortized
30,000 less ₹ 24,000) (Refer W.Note ii)
31.7.2021 Bank Account (₹ 60 × 1,000) …………………………………….Dr 60,000
Stock Option Outstanding A/c (₹ 30 x 1,000)……………Dr 30,000
9)
To Equity Share Capital Account (₹ 10 × 1,000) 10,000
6
45
To Securities Premium Account (₹ 80 × 1,000) 80,000
03
(Being allotment to employees 1,000 shares of ₹ 10 each
3
at a premium of ₹ 80 at an exercise price of ₹ 60 each)
88
Working Notes:
(9
(i) Total employees compensation expense

S
SE
= No. of options x (Market price - exercise price)

AS
= 1,000 x ( ₹ 90 – ₹ 60) = ₹ 30,000

CL
(ii) Employees compensation expense has been written off during 2½ years on straight line basis as
A
TI
under:
O
AL
I year = ₹ 12,000 (for full year)

II year = ₹ 12,000 (for full year)
BH
III year = ₹ 6,000 (for half year)
(iii) Total Securities Premium

= No. of options x (Market price – face value)
= 1,000 x ( ₹ 90 – ₹ 10) = ₹ 80,000

2. Employee Stock option Plan****
ABC Ltd. grants 1,000 employees stock options on 1.4.2018 at ₹ 40, when the market price is ₹ 160.
The vesting period is 2½ years and the maximum exercise period is one year. 300 unvested options
lapse on 1.5.2020. 600 options are exercised on 30.6.2021. 100 vested options lapse at the end of the
exercise period. Pass Journal Entries giving suitable narrations.
Solution:
Books of ABC Ltd.
Journal Entries
Dr. Cr.
F (₹) (₹)
9)
6
45
03
3
88
(9
(1,000 stock options x ₹ 120 / 2.5 years)

S
SE

AS

CL

A
transferred to Profit & Loss A/c at the end)

TI
O

AL

BH

(1,000 stock options x ₹ 120 / 2.5 years)

transferred to Profit & Loss A/c at the end)
31.3.2021 Employees Stock Option Outstanding Account.........Dr. 12,000

To General Reserve Account 12,000
(Being ESOS outstanding A/c on lapse of 300 options
at the end of exercise of option period transferred to
General Reserve A/c) (Refer W.Note i)
30.6.2021 Bank Account (₹ 40 × 600) …………………………………….Dr 24,000
9)
Stock Option Outstanding A/c (₹ 120 x 600)……………Dr 72,000
6
45
To Equity Share Capital Account (₹ 10 × 600) 6,000
03
To Securities Premium Account (₹ 150 × 600) 90,000
3
(Being allotment to employees 600 shares of ₹ 10 each at
88
a premium of ₹ 150 at an exercise price of ₹ 40 each)
(9
S
1.10.2021 Employees Stock Option Outstanding Account.........Dr. 12,000

SE
To General Reserve Account 12,000

AS
(Being ESOS outstanding A/c on lapse of 100 options

CL
at the end of exercise of option period transferred to

A
General Reserve A/c) (Refer W.Note ii)

TI
O
Working Notes:
AL
(i) Total employees compensation expense

BH
= No. of options x (Market price - exercise price)

= 1,000 x ( ₹ 160 – ₹ 40) = ₹ 1,20,000
(ii) Employees compensation expense has been written off during 2½ years on straight line basis as
under:
I year = ₹ 48,000 (for full year)
II year = ₹ 48,000 (for full year)
III year = ₹ 24,000 (for half year)
(iii) On 31.3.2021, ABC Ltd. will examine its actual forfeitures and make necessary adjustments, if
any, to reflect expenses for the number of options that actually vested. Considering that 700
stock options have completed 2.5 years vesting period, the expense to be recognized during
the year is in negative i.e.
No. of options actually vested (700 x 120) ₹ 84,000

Less: Expenses recognized ` (48,000 + 48,000) (₹ 96,000)
Excess expense transferred to general reserve ₹ 12,000
(iv) Similarly, on 1.10.2021, Employee Stock Option Outstanding Account will be
No. of options actually vested (600 x 120) ₹ 72,000
9)
Less: Expenses recognized (₹ 84,000)
6
45
Excess expense transferred to general reserve ₹ 12,000
03
Employee Stock Options Outstanding will appear in the Balance Sheet under a separate heading,
3
between ‘Share Capital’ and ‘Reserves and Surplus’.
88
(9
(v) Total Securities Premium

S
SE
= No. of options exercised x (Market price – face value)

AS
= 600 x ( ₹ 160 – ₹ 10) = ₹ 90,000

CL
3. Employee Stock option Plan [B.com 2006]****

A
TI
BETA Ltd. granted 15,000 options at ₹ 40 to its employees under Employee's stock Option Scheme
O
(ESOS). The face value of each option was ₹ 10 and its market price at that time was ₹ 120. Two years
AL
were the vesting period. All the employees exercised their options fully. Show Journal Entries.
BH
[Ans. Value of option : ₹ 12,00,000; Amount of annual amortisation ₹ 6,00,000]
4. Employee Stock option Plan [B.com 5sem Honours 2019]*

Akash Ltd. granted on 1st April, 2018 options for 2000 shares of ₹ 10, to its employee at ₹ 60 each.
The market price on that date was ₹ 150 per shares.
The vesting period was 3 years and the maximum exercise period was 6 months. Options for 200 shares
were lapsed on 01.04.20. All the options were exercised on 30.09.2021 except for 100 shares. Show the
journal entries in the books of Akash Ltd. (Narration not required.)

Underwriting [10 Marks]:

1. Important terms:
Underwriting
Underwriting is an agreement, with or without conditions, to subscribe to the securities of a company
when existing shareholders of the company or the public do not subscribe to the securities offered to
them.
When a company goes in for an initial public offer (IPO), it may face certain uncertainty about whether
its offer of shares or other securities will be subscribed in full or not. As per SEBI Guidelines it is
required that if the company is not able to collect 90 % of the offer amount, then it needs to
9)
compulsorily return the money to those who have subscribed to the shares and causing lot of issue
6
expenses to go waste. This uncertainty could be avoided by the help of a specialised group of risk-
45
redeemers — called Underwriters.
3 03
88
Underwriting commission:
(9
 Commission is calculated on issue price.

S
SE
 Commission is payable on Gross liabilities of Underwriters.

AS
 Maximum commission permissible by company Act, 2013 is 5 % on issue price of Shares.

CL
 Commission = Gross liability (in shares) x issue Price x commission %

A
Normal underwriting:
TI
O
Under this type of agreement, the underwriter agrees to take up agreed proportion of shares, not taken
AL
up by the public. If the shares are fully subscribed by the public, the underwriter does not take up any
BH
share.
Firm Underwriting
It signifies a definite commitment to take up a specified number of shares irrespective of the number of
shares subscribed for by the public. In such cases the obligation or liability of the underwriter is the
aggregate of shares to be taken up under firm commitment and the shares as per underwriting
commitment.

The benefit of firm underwriting may be given either
 To an individual underwriter on the basis of his individual firm underwriting (i.e. firm
underwriting has been trerated as marked Application)
 To all the underwriters in the ratio of their gross liability (i.e. firm underwriting has been
trerated as unmarked Application)
TYPES OF SHARE APPLICATIONS

Types of Applications Treatment for different types of application
Marked (Bearing the stamp of Marked applications are always credited to the individual
individual underwriter) underwriter
9)
Unmarked (Do not bear any stamp Unmarked applications are always distributed among all the
6
45
of underwriter. Received by underwriters in the ratio of gross liability (if no information
03
Company directly) given)
3
Firm Underwriting (Applications Treatment No.1 The applications for the firm shares are
88
made by the underwriters for given to individual underwriter (i.e. treated as marked)
(9
themselves) Treatment No.2: Benefit given to all underwriters in

S
SE
Gross liability Ratio. (i.e. treated as unmarked)

AS
CL
A
TI
O
AL
BH

2. Calculation of liability of underwriters (normal underwriting)
Statement showing Net liability of underwriters
[Figures - No. of shares]
No Particulars Basis X Y Z
A Gross liability Ratio of Shares ××× ××× ×××
Underwritten
B Less: Marked applications Actual ××× ××× ×××
C Balance [ A - B ] ××× ××× ×××

D Less: Unmarked applications (allotted Ratio of Gross Liability ××× ××× ×××
in the ratio of gross liability)
E Balance [ C- D ] ××× ××× (×××)
F Surplus of any(let Z) is allocated to others (xxx) (xxx) xxxx
9)
(X & Y) (in the Ratio of gross liability)
6
G Net Liability as per agreement ( if no ××× ××× ×××
45
balance is negative) [ E
3 03
3. Calculation of liability of underwriters (Firm underwriting)
88
Statement showing Net liability of underwriters
(9
[Figures - No. of shares]

S
SE
No Particulars Basis X Y Z
A Gross liability Ratio of Shares ××× ××× ×××
AS
Underwritten
CL
B Less: Marked applications (excluding Actual ××× ××× ×××

firm underwriting)
A
TI
C Balance [ A - B ] ××× ××× ×××

O
D Less: Unmarked applications allotted Ratio of Gross Liability ××× ××× ×××
AL
in the ratio of gross liability

BH
E Balance [ C- D ] ××× ××× ×××

F Less: Firm underwriting Actual or Ratio of Gross ××× ××× ×××
Liability
F Surplus of any(let Z) is allocated to others (xxx) (xxx) xxxx
(X & Y) (in the Ratio of gross liability)
G Net Liability excluding firm underwriting ××× ××× ×××
( if no balance is negative)
H Add: Firm underwriting (Actual) Actual ××× ××× ×××
I Total liability (including firm ××× ××× ×××
underwriting)

4. Determine the number of unmarked applications as follows:
Case (a): In case of normal underwriting:
Gross subscriptions Received ******
Less: Total Marked applications received ******
Unmarked applications ******
Case (b): In case of firm underwriting: (If gross application received does not include firm
underwriting OR Application received from the public)
Gross subscriptions Received (excluding firm underwriting) ******
Less: Total Marked applications received (excluding firm underwriting) ******
******
9)
Case (C): In case of firm underwriting: (If gross application received includes firm underwriting)
6
45
Gross subscriptions Received (including firm underwriting) ******
03
Less: Total Marked applications received (excluding firm underwriting) ******
3
88
Less: Total Firm underwriting ******
******
(9
Unmarked applications
S
SE
5. Statement showing the net amount due from/to of

AS
underwriters
CL
No Particular A B
A
s
TI
A Total liability (Including firm underwriting) (No of Shares) ××× ×××

O
AL
B Amount due on total liability (₹) ××× ×××

BH
C Less: Amount already paid on Firm Applications ××× ×××
D Amount due on net liability (₹)

××× ×××
E Less: Underwriting Commission (₹)
××× ×××
F Net Amount due to Underwriters (if D<E) (₹)
××× ×××
Or Net Amount from Underwriters (if D>E) (₹)

1. Underwriting [With firm underwriting]

Outset Ltd. invited applications from public for 1,00,000 equity shares of ₹ 10 each at a premium of ₹ 5
per share. The entire issue was underwritten by the underwriters P, Q, R and S to the extent of 30%,
30%, 20% and 20% respectively with the provision of firm underwriting of 3,000, 2,000, 1,000 and
1,000 shares respectively. The underwriters were entitled to the maximum commission permitted by
law.
The company received applications for 70,000 shares (excluding firm underwriting) from public out of
which applications for 19,000, 10, 000, 21,000 and 8,000 shares were marked in favour of P, Q, R and
S respectively.
Calculate the liability of each underwriter (A) if benefit of firm underwriting is given to all (i.e.treated
9)
as unmarked). Also ascertain the underwriting commission payable to different Underwriters.
6
(B) if Individual benefit of firm underwriting is given (i.e.treated as marked).
45
Solution:
03
(A) Calculation of Net liability of each underwriter (in Shares)
3
(assuming that the benefit of firm underwriting is given to all in gross liability ratio)
88
Particulars P Q R S
(9
Gross liability 30,000 30,000 20,000 20,000

S
SE
Less: Marked applications (excluding firm 19,000 10,000 21,000 8,000

AS
underwriting)
CL
Less: Unmarked Application allotted in the 3,600 3,600 2,400 2,400

A
ratio of gross liability (12,000 x 3 : 3 : 2 : 2)

TI
Less: Firm underwriting allotted in the ratio of 2,100 2,100 1,400 1,400
O
AL
gross liability (i.e. treated as unmarked)

BH
(7,000 x 3 : 3 : 2 : 2)
Balance 5,300 14,300 (4,800) 8,200
Surplus of R is allocated to others (P, Q & S) (in (1,800) (1,800) 4,800 (1,200)
the Ratio of gross liability) (4,800 x 3 : 3 : 2)
Net Liability (excluding firm underwriting) 3,500 12,500 Nil 7,000
Add: Firm Underwriting (Actual) 3,000 2,000 1,000 1,000
Net Liability (Including firm underwriting) 6,500 14,500 1,000 8,000

Calculation of underwriting commission:
As per law in force, underwriting commission is payable @ 5% of the issue price of shares.
Underwriting commission payable to P and Q = 5% of ( 15 x 30,000 shares) = ₹ 22,500.
Underwriting commission payable to R and S = 5% of ( 15 x 20,000 shares)= ₹ 15,000.
Working Note (i):

Computation of unmarked Application:
Application received from public (excluding firm underwrigting) 70,000 shares
Less: Marked applications (excluding firm underwrigting) 58,000 shares
Unmarked application (excluding firm underwrigting) 12,000 shares
Calculate the Net liability of each underwriter if Individual benefit of firm underwriting is given
9)
(i.e.treated as marked).
6
45
(B) Calculation of Net liability of each underwriter (in Shares)
03
(assuming that the individual benefit of firm underwriting is given)
3
88
Particulars P Q R S
(9
Gross liability 30,000 30,000 20,000 20,000

S
SE
Less: Marked applications (excluding firm 19,000 10,000 21,000 8,000

AS
underwriting)
CL
Less: Unmarked Application allotted in the 3,600 3,600 2,400 2,400

ratio of gross liability (12,000 x 3 : 3 : 2 : 2)
A
TI
Less: Firm underwriting (individual benefit 3,000 2,000 1,000 1,000

O
given) (i.e. treated as marked)

AL
Balance 4,400 14,400 (4,400) 8,600

BH
Surplus of R is allocated to others (P, Q & S) (in (1,650) (1,650) 4,400 (1,100)
the Ratio of gross liability) (4,400 x 3 : 3 : 2)
Net Liability (excluding firm underwriting) 2,750 12,750 Nil 7,500
Add: Firm Underwriting (Actual) 3,000 2,000 1,000 1,000
Net Liability (Including firm underwriting) 5,750 14,750 1,000 8,500

2. Underwriting [Without firm underwriting] [B.Com 06]*
On 1st January, 2022 MOON Ltd. issued a prospectus inviting applications for subscription in
10,00,000 Equity Shares of ₹ 10 each. The whole issue was fully underwritten by A,B,C and D. as: A—
30%; B—25%; C—35% and D—10%. The applications were received for 8,00,000 shares of which
marked applications were as follows:
A—1,80,000; B—2,00,000; C—2,03,000 and D—1,67,000.
Find out liability of individual Underwriters.
[Ans. Net Liability: A Rs 81,000; B Rs,17,500; C ₹ 1,01,500]
3. Underwriting [Without firm under writing] [Compiled]*

Newton Ltd. incorporated on 1st January, 2022, issued a prospectus inviting applications for 20,000
Equity Shares of ₹ 10 each. The whole issue was fully underwritten by A, B, and C as follows :
A 10,000 Shares
B 6,000 ,,
9)
C 4,000 ,,
6
45
Applications were received for 16,000 Shares of which marked applications were as follows :
A 8,000 Shares
03
B 2,850 ,,
C 4,150
3
,,
88
You are required to find out the Liabilities of individual Underwriters.
(9
[Division of unmarked shares of A - 500, B - 300, C - 200; Surplus of C - 350 shares allocated
between A and B as 10 : 6 ratio; Net Liability of A - 1,281 shares and B - 2,719 shares]
S
SE
AS
4. Underwriting [With firm underwriting] [2014 Hons] *******

CL
Sam Ltd. invited applications from public for 1,00,000 Equity Shares of ₹ 10 each at a premium of ₹ 5
per shares. The entire issue was underwritten by the underwriters A,B,C and D to the extent of 30 %,
A
TI
30 %, 20 % and 20% respectively with the provision of firm underwriting of 3,000, 2,000, 1,000 and
O
1,000 shares respectively. The underwriters were entitled to the maximum commission permitted by
AL
law.
BH
The Company received applications for 70,000 shares from the public out of which applications for
19,000, 10,000, 21,000 and 8,000 shares were marked in favour of A, B, C and D respectively.
Calculate the Liability to each underwriter assuming the firm underwriting as (i) marked application,
(ii) unmarked application. Also ascertain the underwriting commission payable to each underwriter.
[Net Liability (i) A - 2,750 Shares, B - 12,750 Shares, C - Nil and D - 7,500 Shares . (ii) A - 3,500
Shares, B - 12,500 Shares, C - Nil, D - 7,000 Shares. Commission : A - ₹ 11,250, B - ₹ 11,250, C
- ₹ 7,500 and D - ₹ 7,500]

5. Underwriting [B.com 5th Sem General 2020, 2017 Hons] **
The following underwriting took place for Pioneer Ltd., which invited applications for 10,000 shares of
₹ 10 each : X : 6,000 shares, Y : 2,500 shares, Z : 1,500 shares
In addition, there were firm underwriting as follows : X : 800 shares, Y : 300 shares, Z : 1,000 shares
Total subscription including firm underwriting was 7,100 shares, and the forms included the following
marked forms : X : 1,000 shares, Y : 2,000 shares, Z : 500 shares
You are required to compute the underwriter’s liability in number of shares when the specific benefit of
firm underwriting is to be given to the underwriters (i.e. Marked Application)
6. Underwriting [B.com 5th Sem General 2019] ********

Zenith Ltd., issued 3,00,000 shares of ₹ 10 each at a premium of ₹ 2. The entire issue was
9)
underwriting by X, Y and Z in the ratio of 3:2:1. Their firm underwriting was as follows:
6
45
X : 35,000, Shares Y : 20,000 shares, Z : 22,500 shares.
03
The total subscription excluding firm underwriting & including marked application were for 1,60,000
3
shares. Marked application received were as follows: 88
(9
The underwriting contract provided that credit for unmarked applications to be given to the
S
SE
underwriters in proportion to the shares underwritten and benefit of firm underwriting is to be given to
AS
all Underwriters.
CL
You are required to compute the underwriter’s liability in number of shares.

A
TI
7. Underwriting [B.com 5th Sem Hons 2019] ********

O
Remo Ltd. issued a prospectus inviting applications for subscription in 10,00,000 equity shares of ₹ 10
AL
each. The whole issue was fully underwritten by A, B, C and D as:

BH
A – 30%; B – 25%; C – 35% and D – 10% (including firm underwriting of A and B)

Applications were received for 8,00,000 shares of which marked applications (excluding firm) were as
follows:
A – 1,80,000; B – 2,00,000; C – 2,03,000 and D – 1,67,000.
Firm applications were : A – 60,000 and B – 40,000 shares.
Determine the liability of each underwriter.

8. Underwriting [B.com 2008] ******
Calcutta Ltd. offered to the public to issue 18,00,000 shares at par These offer was underwritten by
three, underwriters Chetan, Dola and Ellias equally with firm underwriting 60,000 shares each.
Subscriptions totalled 15,80,000 shares including the marked forms which were:
Chetan- 5,00,000 shares, Dola- 5,40,000 shares, Ellias- 4,40,000 shares.
Calculate the liability of the underwriters (No. of shares).
[Net liability of Underwriters : Chetan - Nil, Dola - Nil, Ellias- 40,000 Shares; Total Liability : Chetan :
60,000 Shares, Dola - 60,000 Shares; Ellias - 1,00,000 Shares]
9. Underwriting [B.com 2012] *******

C Ltd. decided to issue 10,50,000 equity shares of ₹ 10 each to the public, A,B and C have come
forward to underwrite the public issue in 3:1:1 and also agreed for firm underwriting of 30,000,
6 9)
20,000 and 10,000 shares respectively. Applications were received for 10,10,000 shares and the
45
details are as below:
03
Marked Applications:
3
88
A – 5, 80,000 shares (including firm applications)
(9
B – 2, 20,000 shares (including firm applications)
S
C – 1, 60,000 shares (including firm applications)

SE
Unmarked Application: 50,000 shares.

AS
Calculate the total liability of each underwriter assuming that firm applications are to be treated as
CL
unmarked.
A
TI
10. Underwriting [B.com 2016] ********

O
AL
BD Flour Mills Ltd. floated a public issue of 1, 50,000 Equity Shares having face value of ₹ 10 each
BH
at par. A, B and C have taken underwriting of the issue in equal share with firm underwriting of
25,000, 20,000 and 20,000 shares respectively. Applications were received for 1,46,000 shares out of
which the marked applications were as under: A – 24,600, B – 20,000 and C – 15,000
Credit of unmarked applications is to given to underwriters equally. The agreed underwriting
commission was 5%. Total amount payable on application and allotment was ₹ 5 per share and
balance in calls.
Compute the following: (i) Liability of each underwriter (in shares as well as in amount). (ii)
Commission due to underwriter.

Redemption of Preference
Shares [10 Marks]
1. Redemption of Preference shares
Redemption is the process of repaying an obligation, at prearranged amounts and timings. It is a
contract giving the right to redeem preference shares within or at the end of a given time period at
an agreed price.
Methods of redemption of Preference shares
69)
45
(b)
03
Capitalisation Combination
By Fresh issue
3
of (a) and (b)
of shares (a) of
88
undistributed
profits
(9
S
SE
AS
2. Accounting Entries
CL
When new shares/Debentures are issued at par

A
Bank Account …………………………………………Dr.

TI
To Equity Share Capital/Preference share/Debenture Account

O
AL
(Being the issue of …….shares/Debenture of ₹ ……each for the purpose of redemption of

BH
preference shares, as per Board’s Resolution No…… dated……. )
When new shares/Debneture are issued at a premium

Bank Account………………………………………….Dr.
To Equity Share Capital/Preference share/Debenture Account
To Securities Premium Account
(Being the issue of ……..shares/Debenture of ₹ ……each at a premium of ₹ ……each for the
purpose of redemption of preference shares as per Board’s Resolution No….. dated……)

When Investment/Fixed Assets were sold at loss:
Bank A/c…………………………………………………….Dr.
Profit and Loss A/c (loss on sale) A/c …………………….Dr.
To Investment/Fixed Assets A/c
(Being Investment/Fixed Assets Sold)
When Investment/Fixed Assets were sold at Profit:

Bank A/c…………………………………………………….Dr.
To Investment/Fixed Assets A/c
To Profit and Loss A/c (Profit on sale) A/c
(Being Investment/Fixed Assets Sold)
9)6
45
When preference shares are redeemed at par
03
Redeemable Preference Share Capital Account………………..Dr.
To Preference Shareholders Account
3
88
(Being the amount payable on redemption of preference shares transferred to Preference
(9
Shareholders Account)
S
SE
AS
When preference shares are redeemed at a premium

CL
Redeemable Preference Share Capital Account………………Dr.

A
Premium on Redemption of Preference Shares Account……..Dr.

TI
To Preference Shareholders Account

O
AL
(Being the amount payable on redemption of preference shares transferred to Preference

Shareholders Account)
BH
When payment is made to preference shareholders

Preference Shareholders Account…………………………….Dr.
To Bank Account
(Being the amount paid on redemption of preference shares)

For adjustment of premium on redemption
Securities Premium (1st)……………………………………..Dr.
Profit and Loss Account (2nd)……………………………….Dr.
General Reserve (3rd)……………………………………….Dr.
To Premium on Redemption of Preference Shares Account
(Being Premium on Redemption of Preference Shares written off)
For transferring nominal amount of shares redeemed to Capital Redemption Reserve

Account
Specific Reserve (free Portion) (1st)………………………...Dr.
General Reserve (2nd )……………………………………….Dr.
Profit and Loss Account (3rd)……………………………….Dr.
6 9)
To Capital Redemption Reserve Account
45
(Being the amount transferred to Capital Redemption Reserve Account as per the requirement of
03
the Act).
3
88
Note:
(9
(a) Partly paid-up/called up Preference Shares are not eligible for Redemption.
S
(b) Securities premium and capital reserve cannot be utilised for transfer to Capital
SE
Redemption Reserve.
AS
CL
3. Computation of CRR
A
TI
Calculation of Amount of Capital Redemption Reserve (CRR) Account:

O
Face value of Eligible Preference Shares xxxx

AL
Less: Proceeds from fresh issue of shares xxxx

BH
Capital Redemption Reserve xxxx

Note:
(a) If shares were issued at Par/Premium then Proceeds from fresh issue = Face value
(b) If shares were issued at Discount then Proceeds from fresh issue = Net amount received
(c) Proceeds from issue of Debentures can’t be used for computation of CRR.

4. Computation of Number of Equity shares to be issued
Face value of shares redeemed xxx
Less: Profits available for distribution as dividend (CRR) xxx
Proceeds to be collected from New Issue (a) xxx
Issue Price/Share (b) xxx
Number of Equity shares to be issued (a ÷ b) xxx
Profits available for distribution as dividend = Amount to be Transferred to CRR

[General Reserve + Profit & Loss Account + Specific Reserve (free Portion)
[Securities premium and capital reserve cannot be utilised for transfer to Capital Redemption
9)
Reserve]
6
45
5. If Minimum Bank Account to be Maintained
3 03
Step 1: Prepare Bank Account And balancing figure will be Procees from issed of shares
88
(9
Step 2: Calculate Number of Equity shares to be issued as follows:

S
SE
Proceeds to be collected from New Issue (a) xxx

AS
Issue Price/Share (b) xxx

CL
Number of Equity shares to be issued (a ÷ b) xxx

A
TI
Step 3:Calculate the CRR:

O
AL
Face value of Eligible Preference Shares xxxx

BH
Less: Proceeds from fresh issue of shares xxxx

Capital Redemption Reserve xxxx
Note:
(a) If shares were issued at Par/Premium then Proceeds from fresh issue = Face value
(b) If shares were issued at Discount then Proceeds from fresh issue = Net amount received
(c) Proceeds from issue of Debentures can’t be used for computation of CRR.

1. Redemption of preference shares
The capital structure of a company consists of 20,000 Equity Shares of ₹ 10 each fully paid up
and 1,000 8% Redeemable Preference Shares of ₹ 100 each fully paid up.
Undistributed reserve and surplus stood as:
General Reserve ₹ 80,000
Profit and Loss Account ₹ 20,000
Investment Allowance Reserve ₹ 10,000
(out of which ₹ 5,000 not free for distribution as dividend)
Securities Premium ₹ 2,000,
9)
Cash at bank amounted to ₹ 98,000.
6
Preference shares are to be redeemed at a Premium of 10% and for the purpose of redemption, the
45
directors are empowered to make fresh issue of Equity Shares at par after utilising the
03
undistributed reserve and surplus, subject to the conditions that a sum of ₹ 20,000 shall be
3
88
retained in general reserve and which should not be utilised.
(9
Pass Journal Entries to give effect to the above arrangements and also show how the relevant
S
items will appear in the Balance Sheet of the company after the redemption carried out.
SE
Solution:
AS
Books of ABC Ltd.

CL
Journal Entries
A
Dr. Cr.
TI
O

AL
F (₹) (₹)
BH
Bank A/c………………………………………………....Dr. 25,000

25,000
(Being the issue of 2,500 Equity Shares of ₹ 10
each at a premium of ₹ 1 per share as per Board’s
Resolution No…..dated…….)

8% Redeemable Preference Share Capital A/c………..Dr. 1,00,000
Premium on Redemption of Preference Shares A/c..Dr 10,000
To Preference Shareholders A/c
1,10,000
(Being the amount paid on redemption transferred to
Preference Shareholders Account)
Preference Shareholders A/c……………………………..Dr. 1,10,000

To Bank A/c 1,10,000
(Being the amount paid on redemption of preference
shares)
Profit & Loss Account …………………………………..Dr. 10,000
To Premium on Redemption of Preference Shares A/c 10,000
(Being the premium payable on redemption is
adjusted against Profit & Loss Account)
9)
General Reserve A/c ………………………………………………...Dr. 60,000
6
45
Profit & Loss A/c. ……………………………………………………..Dr. 10,000
03
Investment Allowance Reserve A/c……………………………Dr. 5,000
To Capital Redemption Reserve A/c

3 75,000
88
(Being the amount transferred to Capital Redemption
(9
Reserve Account as per the requirement of the Act)

S
SE
AS
Balance Sheet as on ………[Extracts]

CL
Particulars Notes ₹
A
No.
TI
EQUITY AND LIABILITIES

O
AL
1. Shareholders’ funds
a Share capital 1 2,25,000
BH
b Reserves and Surplus 2 1,02,000

Total ?
ASSETS
2. Current Assets
Cash and cash equivalents 13,000
(98,000 + 25,000 – 1,10,000)
Total ?

Notes to accounts
1. Share Capital
22,500 Equity shares (20,000 + 2,500) of ₹10 each 2,25,000
fully paid up
2. Reserves and Surplus
Investment Allowance Reserve 5,000
1,02,000
Working Note (i):
6 9)
Computation of No of Shares to be issued for redemption of Preference Shares:
45
Face value of shares redeemed ₹1,00,000
03
Less: Profit available for distribution as dividend:
3
88
General Reserve : ₹(80,000-20,000) ₹60,000
(9
Profit and Loss (20,000 – 10,000 set aside for adjusting premium payable
S
on redemption of preference shares) ₹10,000

SE
Investment Allowance Reserve: ( ₹ 10,000-5,000) ₹ 5,000 ( ₹ 75,000)

AS
₹ 25,000
CL
Therefore, No. of shares to be issued = 25,000/ ₹10 = 2,500 shares.

A
TI
O
AL
BH

2. Redemption of preference shares [B.com 2012 Pass]*
Following is the Balance Sheet of XYZ Ltd. as an 31.12.2021:
Liabilities ₹ Assets ₹
20,000 Eq. Share @ 10 each fully paid 2,00,000 Fixed Assets 1,50,000
1,000 5% redeemable Pref. Shares @ 100 1,00,000 Investments 1,00,000
each fully paid up
Securities Premium 22,000 Stock 75,000
P&L A/c 30,000 Debtors 45,000
General Reserve 48,000 Bank 30,000
4,00,000 4,00,000
In January 2022, Preference Shares are to be redeemed at 5% premium. For this purpose Investments were
9)
sold at a Profit of 10% and 5,000 equity Shares of ₹ 10 each were issued at ₹ 10.50 per Shares. The
6
45
Preference Shares were duly redeemed. Show Journal entries.
3 03
3. Redemption of preference shares [B.com Pass 1993]*88
(9
Payout Ltd. had following balances in its balance sheet as on 31.12.21: ₹
5,000 equity shares of ₹ 100 each, fully paid 5,00,000
S
SE
3,000 9% preference shares of ₹ 100 each, fully paid 3,00,000

AS
Securities premium account 50,000

CL
General reserve 1,20,000

Profit and loss account 2,00,000
A
TI
On 1.1.22 the preference shares are redeemed at 10% premium. For the purpose of redemption, 1.000 equity
O
shares of ₹ 100 each. are issued at 15% premium and investments costing ₹ 50,000 are sold at ₹ 40,000.
AL
Profit and loss account balance should be utilized first. Give necessary journal. entries to complete the
BH
transactions and show the share capital and reserve sections of the balance sheet immediately after the
redemption.
[Premium on redemption ₹ 30,000 will be provided out of Securities Premium A/c. Transfer to Capital
Redemption Reserve A/c ₹ 2,00,000 (₹ 1,90,000 from P/L and ₹ 10,000 from G/R]

4. Redemption of preference shares*
The following balances were extracted from the books of a company:
₹
20,000, 8% Preference Shares of ₹ 10 each fully paid 2,00,000
6,000, 7% Preference Shares of ₹ 10 each, ₹ 8paid-up 48,000
40,000 Equity Shares of ₹ 10 each fully paid 4,00,000
Profit & Loss account 2,00,000
Capital Reserve 50,000
The Preference Shares were redeemed at 10% premium to the extent possible. For this purpose the Company
9)
issued 10,000 Equity Shares of ₹ 10 each at 10% premium. Holders of 200, 8% Preference Shares could not
6
be traced. Minimum use of General Reserve was made. Show Journal entries.
45
[20,000, 8% Pref. Shares of ₹ 10 each can be redeemed; Capital Redemption Reserve to be created ₹
03
1,00,000]
3
88
(9
5. Redemption of preference shares [Honours 2002] ******
S
The books of the XYZ Ltd. showed the following balances on 31st December, 2021:
SE
₹
AS
15,000 equity shares ₹ 10 each fully paid 1,50,000

CL
2,500 10% preference shares of ₹ 100 each fully paid 2, 50,000

A
500 8% preference shares of ₹ 100 each, ₹ 70 paid up 35,000

TI
General reserve 75,000

O
AL
Profit and loss account 1, 60,000

BH

Investments 1, 20,000
Cash at bank 39,600
On 1st January, 2022 the board of directors decided to redeem the preference shares which are eligible for
redemption, at a premium of 8%. In order to payoff preference shareholders the company also decided to sell
the investments, use company's fund and to raise the balance by the issue of sufficient number of equity shares
of ₹ 10 each at a premium of ₹ 1 per share subject to leaving a minimum bank balance of ₹ 9,600 after such
redemption. Investments were sold at ₹ 1,08,000. Show the necessary journal entries to record the transactions.
[Fund to be raised by issue of shares ₹ 1,32,000 Transfer to CRR ₹ 1,30,000]

The capital structure of Sky Ltd. consists of 60,000 equity share of ₹ 10 each and 2,000 8%
redeemable preference shares of ₹ 100 each of which 200 shares are paid upto ₹ 80.The reserves and
surplus of the of the company stood as under.
₹
Balance of profit and loss statement 30,000
Cash at bank amounted to Rs 1,80,000. Preference shares are to be redeemed at a premium of 10%. A
fresh issue of equity shares were made at par for the purpose of redemption after utilization of the
undistributed reserves and surpluses, subject to the condition that a sum of ₹ 50,000 shall be retained
6 9)
in general reserve. Pass journal entries to give effect to the above arrangement assuming that the
45
company could not trace the holders of 100 preference shares.
03
7. Redemption of preference shares [2014 Honours] *****
3
88
The following is the extract of Balance Sheet of Tik-Tok Ltd. as on 31.12.2021
(9
₹ ₹
S
10% Redeemable Preference Share Capital:

SE
AS
1,500 shares @ ₹ 100 each fully called up 1,50,000

Less: Calls unpaid @ ₹ 10 each 1,000 1,49,000
CL

A
TI
Profit & Loss Account 15,000

O
Securities Premium Account 20,000

AL
Investment Allowed Reserve 30,000

BH
(₹ 20,000 is free for distribution)

Investments (Face value ₹ 40,000) 31,000
Investments were sold at 90% of their face value. The Preference Shares were redeemed at a
premium of 10%. Sufficient number of Equity Shares of ₹ 10 each was issued at par as was
necessary for the purpose after utilising the available funds to the maximum extent.
Give Journal Entries to record the above transactions.

8. Redemption of preference shares [5th sem Honours 2020]*
The capital structure of a company as on 31.03.2021 consisted of 20000 equity shares of ₹ 10 each
fully paid up and 1000, 8% Redeemable preference shares of ₹ 100 each fully paid up. Undistributed
reserves and surplus were as under :
General Reserve ₹ 80,000
Balance in Statement of Profit & Loss ₹ 32,000
Cash at Bank amounted to ₹ 98,000. Preference shares are to be redeemed at a premium of 10% and
for the purpose of redemption, the directors are empowered to make fresh issue of equity shares at
par after utilizing the reserves and surplus subject to the condition that a sum of ₹ 25,000 shall be
retained in General Reserve.
Pass necessary journal entries to give effect to the above arrangements (narration required) and also
all relevant workings.
9. Redemption of preference shares [5th sem General 2019]*
9)
The Balance Sheet of Gyan Ltd. as on 31.03.2021 is an follows:
6
Equity and Liabilities Amount (₹)
45
Shareholder’s fund
03
(a) Shareholders’ fund
3
Equity Share Capital of ₹ 10 each fully paid
88 2,00,000
10% Preference Share Capital of ₹ 100 each fully paid 3,00,000
(9
(b) Reserve and Surplus
S
SE
Profit and Loss balance 4,00,000

Current Liabilities
AS
Trade Payable 80,000

CL
11,00,000
Assets Amount (₹)
A
TI
Non-current investment
O
(a) Property Plant and equipment - tangible 5,00,000

AL
(b) Non-current investment 3,00,000

Current Assets
BH
Cash and cash equivalent 3,00,000

11,00,000
In the board meeting it was decided
(i) To Sell investment at a profit of ₹ 10,000.
(ii) To redeem the Preference Shares at 10% premium.
(iii) Utilize the reserve and profit and loss balance after maintaining balance in Profit and Loss
Account ₹ 3,00,000 for redemption.
(iv) To issue minimum number of equity shares of ₹ 10 each for the purpose of redemption.
You are requirement to pass necessary journal entries to record the above transactions.

The capital structure of a company consists of 30,000 Equity Shares of ₹ 10 each fully paid up and 1,000, 6%
Preference Shares of ₹ 100 each fully paid up. The company has ₹ 70,000 in General Reserve, ₹ 10,000 in
Profit & Loss Account, ₹ 20,000 in Investment Allowance Reserve (not available for distribution as dividend)
and ₹ 11,000 in Securities Premium.
The Preference Shares are due for redemption at a premium of 10%. The company decides to make a fresh
issue of Equity Shares at par and to use Profits and Reserves in a manner so that a minimum balance of ₹
10,000 is maintained in General Reserve.
Show the Journal Entries to give effect to the above arrangements.
11. Redemption of preference shares [5th sem Honours 2019]*

The following balances are extracted from the books of Sun Ltd.:
10,000, 10% Preference Shares of ₹ 10 each, fully paid up;
6,000, 9% Preference Shares of ₹ 10 each, ₹ 9 paid up;
9)
20,000 Equity Shares of ₹ 10 each, fully paid up;
6
General Reserve ₹ 2,20,000;
45
Profit & Loss account ₹ 80,000;
03
Capital Reserve ₹ 20,000;
3
Securities Premium ₹ 20,000 (both the categories of Preference shares were issued prior to 2012.)
88
Preference Shares are to be redeemed at 10% premium. For this purpose 5,000 Equity Shares of ₹ 10
(9
each are issued at 10% premium. Holders of 500, 10% Preference Shares are not traceable. Minimum
use of free reserve is to be made for the purpose of redemption of Preference Shares. Pass necessary
S
SE
Journal Entries.
AS
12. Redemption of preference shares [B.com 1994 Honours] *

CL
The following balances are appearing in the books of X Ltd. on 1.4.21:-

A
₹
TI
Redeemable Preference Shares Capital (shares of ₹ 10 each) 2,00,000

O
Calls-in-arrear 2,000
AL

BH
The preference shares are fully called up and are due for redemption at a premium of 10 %.
Calls-in-Arrear are in respect of final call at the rate of ₹ 4 per share and these shares are held by Mr. M. Sen
whose whereabouts are not known.
The Board of Directors decided that 50% of the General Reserve is to be utilised for the purpose of redemption
of redeemable Preference shares and for the balance necessary amount of equity shares of ₹ 10 each were
issued at a premium of 20%.
The redemption of preference shares were duly carried out and subsequently the company utilised the balance
of Capital Redemption Reserve A/c to issue equity shares at ₹ 10 each as bonus to shareholders.
You are required to pass the necessary Journal entries in the books of X Ltd.
[Ans. equity shares issued 14,500; Pref. shares to be redeemed 19,500; Bonus Shares to be issued 5,000.]

Buyback of Equity Shares

[10 Marks]
1. Buyback of Equity Shares
The Companies Act, 2013 under Section 68 (1) permits companies to buyback their own shares
and other specified securities out of:
(a) its free reserves; or
(b) the securities premium account; or
(c) the proceeds of the issue of any shares or other specified securities.
9)
2. Determination of quantum for buy-back
6
45
The maximum number of shares to be bought back is determined as the least number of shares
03
arrived by performing the following tests:
3
88
(1) Share Outstanding test :
(9
(a) Ascertain the number of shares

S
SE
(b) 25% of the number of shares is eligible for buy back with the approval of shareholders.
AS
(2) Resource test :

CL
(a) Ascertain shareholders’ fund (Share Capital + Reserves & Surplus – Preliminary expenses etc)
A
(b) No. of shares held for buyback = Shareholders’ funds ÷ Buy back price
TI
O
AL
(3) Debt Equity Ratio test :

BH
(a) Ascertain Debt (Long term loan + Debenture)

(b) Minimum equity to be maintained after buy back in the ratio 2:1 [50% of a]
(c) Present equity

(d) Maximum possible dilution in equity (d = c – b)
(e) Buyback Price per share
(f) Maximum shares that can be bought back = d ÷ e
Maximum shares that can be bought back = Least of (1), (2) or (3)

3. Accounting Entries
(a) Shares held for buy-back

Equity Share Capital A/c ……………………………..Dr.
Premium on Buyback ………………………………....Dr.
To Equity Shareholders A/c
(Being amount due to equity shareholders for buying-back of ……..equity shares @ ……..each)
(b) On buy-back of shares

Equity Shareholders A/c……………………………...Dr.
To Bank A/c
(Being payment to shareholders towards buy-back)
6 9)
45
(c) Adjustment of premium on buyback
03
Securities Premium A/c……………………………Dr.
3
88
General Reserve A/c……………………………….Dr.
(9
Profit & Loss A/c …………………………………Dr.
S
To Premium on Buyback A/c

SE
(Being premium on buyback written off)

AS
CL
(d) Transferring reserves to the extent of capital redeemed

A
Free Reserves A/c …………………………………Dr.

TI
O
Profit Loss A/c…………………………………….Dr.

AL
To Capital Redemption Reserve

BH
(Transfer to capital redemption reserve out of profit)
Note:
 Securities premium may be utilised for capital Redemption Reserve if needed.
 Revaluation Reserve & Specific Reserves can’t be used for capital Redemption Reserve.
 Specific Reserves (free portion only) be used for capital Redemption Reserve.

1. Buyback of Equity Shares
XYZ Ltd. has the following capital structure on of 31st March 2021.

Particulars ₹ in Lakhs
a. Equity Share capital (Shares of ₹ 10 each) 300
b. Reserves :
General reserve 270
Security Premium 100
Profit and Loss A/c 50
Export Reserve (Statutory reserve) 80
6 9)
c. Loan Funds 800
45
Advice the company on maximum number of shares that can be bought back if the buyback price is ₹
03
30 each and record journal entries.
3
88
Solution:
(9
In the Books of XYZ Ltd.
S
Journal Entries
SE
Dr. Cr.
AS

CL
F (₹ in lakhs) (₹ in lakhs)
A
Equity Share Capital A/c ……………………………..Dr. 60

TI
O
Premium on Buyback ………………………………....Dr. 120

AL
To Equity Shareholders A/c 180

BH
(Being amount due to equity shareholders for buying-back

of 6,00,000 equity shares @ ₹ 30 each)
Equity Shareholders A/c……………………………...Dr. 180
To Bank A/c 180
(Being payment to shareholders towards buy-back)

Securities Premium A/c……………………………Dr. 100
General Reserve Ac (balancing figure)...………….Dr. 20
To Premium on Buyback A/c 120
(Being premium on buyback written off)
General Reserve A/c ………………………………………………...Dr. 60
To Capital Redemption Reserve A/c 60
(Being transfer of reserves to capital redemption

reserve to the extent capital is redeemed)
Working Notes :
WN # 1: Shares outstanding test:
Particulars No. of shares
6 9)
No. of shares outstanding 30 lakhs
45
25% of shares outstanding 7.5 lakhs
03
WN # 2: Resources test:
3
88
Particulars Amount (₹ in lakhs)
(9
a. Paid up capital 300
S
b. Free reserves [270+100+50] 420

SE
c. Shareholders fund (a+b) 720

AS
d. 25% of shareholders fund 180

CL
e. Buyback price per share 30

A
f. Number of shares that can be bought back 6 lakhs shares

TI
O
WN # 3: Debt Equity ratio test:

AL
Particulars Amount
BH
(₹ in lakhs)
(a) Borrowed Funds 800
(b) Minimum equity to be maintained after buy back in the ratio 2:1 400
(c) Present equity 720
(d) Maximum possible dilution in equity [c – b] 320
(e) Maximum shares that can be bought back @ ₹ 30/share [d ÷ 30] 10.67 lakhs shares
Maximum shares that can be bought back = Least of (1), (2) and (3) = 6 lakhs shares.

2. Buyback of Equity Shares [B.com 2009 Honours] *
Delight Ltd. decided to buy-back 60,000 of its equity shares of ₹ 10 each at a premium of 25%. For
this, it issues 5,000, 7.5 % Preference shares of ₹ 100 each at par. The company has ₹ 90,000 in
General Reserve; ₹ 80,000 in Profit and Loss Account (Cr.); ₹ 1,20,000 in Capital Reserve and ₹
1,00,000 in security premium. It decided to utilise profits and reserves also. Give journal entries for
the above.
[Ans. Amount transferred to Capital Redemption Reserve ₹ 1,00,000]
3. Buy-Back of equity Shares [2006, 2015 Pass type] ******
The Balance Sheet of BLACK Ltd. as on 31st March, 2021 is as follows:
9)
6
45
Share Capital of ₹ 10 each Land & Building 30,00,000
03
fully paid up 80,00,000 Machinery 45,00,000
3
Securities Premium 25,00,000 Furniture
88 10,00,000
General Reserve 7,00,000 Investments 10,80,000
(9
Profit & Loss A/c 4,80,000 Sundry Debtors 5,40,000

S
SE
6.5% Debentures 3,00,000 Cash & Bank Balance 21,13,000

AS
Sundry Creditors 2,53,000

CL
1,22,33,000 1,22,33,000
On 1st April, 2021 the company announced the buy back of its 25% Equity Shares at ₹ 20 per shares.
A
TI
For that purpose the Company sold its entire investments at ₹ 12,00,000 and issued 8,000, 10%
O
Preference Shares of ₹ 100 each. The Company utilised 50% of the General Reserve, 100% of the
AL
Profit and Loss A/c and the rest was taken from the Securities Premium A/c. Show necessary Journal
BH
Entries.
[Ans. Amount transfer to Capital Redemption Reserve ₹ 12,00,000]

4. Buy-Back of equity Shares [5th Semester General 2020] *
The following balances are included Balance Sheet of E. Ltd. as on 31st Mrach, 2021 :
(Amount) (₹)
6,00,000 Equity Shares of ₹ 10 each fully paid 60,00,000
12% Debentures of ₹ 100 each 28,00,000
Trade Payables 9,20,000
On 1st April 2021, the shareholders of the company have approved the scheme of buyback of equity
shares as under :
(a) 20 % of the equity shares would be bought back at ₹ 16 per shares.
9)
(b) Premium payable on buyback of shares should be met from the Securities Premium Account.
6
45
(c) Investments would be sold for ₹ 7,80,000 (Book value being ₹ 7,40,000).
03
Pass journal entries to record the above transactions.
3
88
(9
5. Buy-Back of equity Shares [5th Semester Honours 2020] *
S
Following figures are available from the Balance Sheet of King Ltd. as on 31.03.2021 (in ₹.) :
SE
₹
AS
Equity shares of ₹ 100 each, fully paid up 30,00,000

CL

A

TI
O
Balance in the statement of Profit & Loss (cr.) 10,00,000

AL
Capital Reserve 2,00,000

BH
Cash and Bank 5,00,000

The company decided to buy-back 6,000 equity shares at ₹ 125 per shares. For this purpose it
decided to issue 2,000 10% Preference Shares of ₹ 100 each at 10% premium. It also sold 3/4 th of
4
the investments @ 75% of the face value.
Pass necessary journal entries in the books of King Ltd to give effect to the above (Narrations not
required).

6. Buy-Back of equity Shares [B.com 2013] *
The balance sheet of Modern Marbles Ltd. as at 31st March, 2021 is as follows:
Equity and Liabilities ₹
Shareholders’ funds :
Share capital 50,00,000
Reserves and surplus 15,65,000
Non – current liabilities :
Long – term borrowings 38,25,000
Current liabilities :
Trade payables 8,67,000
Assets 1,12,57,000
Non – current assets :
Fixed assets
9)
Investments 66,00,000
6
Current assets : 18,00,000
45
Inventories 11,87,000
03
Trade receivables 9,60,000
Cash and cash equivalents 7,10,000
3
88
1,12,57,000
(9
Notes :
Share capital : ₹
S
SE
Issued, subscribed and fully paid :

5,00,000 shares of ₹ 10 each 50,00,000
AS
Reserves and surplus :

5,40,000
CL
Securities premium
6,50,000
General reserve
3,75,000
A
Surplus in profit and loss statement

TI
O
15,65,000
AL
The shareholder adopted the resolution on the date of the above mentioned balance sheet to:
BH
(a) Buy-back 20% of the paid up capital @ ₹ 15 each. .

(b) Issue 5,000 8% preference shares of ₹ 100 each at a premium of 10% to finance the buy-back of shares.
(c) Maintain a balance of ₹ 3,00,000 in general reserve account.
(d) Sell investments worth ₹ 8,00,000 for ₹ 6,50,000.
You are required to pass the necessary journal entries.
[Balance sheet total ₹ 1,01,57,000. Cash and bank balances ₹ 4,10.000. Transfer to capital redemption
reserve ₹ 5,00,000]

7. Buy-Back of equity Shares [2011/2014 Honours] **
On 31st March, 2021 the abridged balance sheet of Blue Chip Ltd. was as follows:
Equity and Liabilities ₹
Paid up capital :
2,40,000 equity shares of ₹ 10 each, fully paid up 24,00,000
Securities premium 12,00,000
14% debentures 50,00,000
Trade payables 22,00,000

1,44,00,000
Assets
Fixed assets 72,00,000
9)
Stock – in trade 20,00,000
6
Trade receivable 16,00,000
45
Cash and bank 36,00,000
03
1,44,00,000
3
The company intends to buy – back 40,000 equity shares at a premium of ₹ 30 per shares. State whether the
88
company can do so and, if your answer is affirmative, pass journal entries for the same.
(9
8. Buy-Back of equity Shares [5th Semester Honours 2019] *

S
SE
The following information is available from the Balance Sheet of Everest Co. Ltd. as on 31.03.2021.
AS
(a) Share Capital: ₹

Subscribed and fully paid up:
CL
1,20,000 Equity Shares of ₹ 10 each. 12,00,000

A
12,00,000
TI
(b) Reserves and Surplus: ₹

O
(i) General Reserve 18,00,000

AL
(ii) Securities Premium 6,00,000

24,00,000
BH
(c) Total of secured and unsecured loan – ₹ 36,00,000
On the above date equity shares are bought back by the company to the extent possible as per section 68(2) of
the Companies Act, 2013, at premium of ₹ 40 per shares. You are required to give journal entries to give the
effect to buy-back and also show all workings.

Redemption of Debentures
[10 Marks]
1. REDEMPTION OF DEBENTURES
Redemption of debentures is the process of discharging the liability on account of debentures in
accordance with the terms of redemption stated in the debenture trust deed. Discharge of debenture
liability is usually by paying cash to the debenture holde ₹
2. Sinking fund method: Accounting entries

First year
9)
6
Profit and Loss A/c……………………………………………………….....Dr.
45
To Sinking Fund A/c
03
(Setting aside the required amount based on sinking fund table)
3
88
(9
Sinking Fund Investment A/c……………………………………………….Dr.
S
To Bank A/c
SE
(Investment of amount set aside)

AS
Second and subsequent years

CL
A
Bank A/c…………………………………………………………………….Dr.
TI
To Sinking fund interest A/c

O
AL
(Interest on sinking fund investment received.)

BH
Sinking fund interest A/c………………………………………………….Dr.

To Sinking fund A/c
(Transfer of interest account to sinking fund.)
Profit and loss A/c………………………..………………………………..Dr.

To Sinking fund A/c

Sinking fund investment A/c………………………………………………..Dr.
To Bank A/c
(Investment of amount set aside and the amount of interest received.)
Last year
Bank A/c…………………………………………………………………….Dr.
To Sinking fund interest A/c
(Interest on sinking fund investment received.)
Sinking fund interest A/c………………………………………………….Dr.
9)
To Sinking fund A/c
6
(Transfer of interest account to sinking fund.)
45
03
Profit and loss A/c……………….………………………………………..Dr.
3
88
To Sinking fund A/c
(9

S
SE
At the time of sale of investments and redemption

AS
CL
Bank A/c……………………………………………………………………Dr.
A
To Sinking fund investment A/c

TI
O
(Amount received from sale of investment)

AL
BH
Sinking fund A/c…………………………………………………………….Dr.

To Sinking fund investment A/c
(Loss on sale)
Sinking fund investment A/c………………………………………………..Dr.

To Sinking fund A/c
(Profit on sale)

Debentures A/c………………………………………………………..Dr.
Premium on redemption of Debentures A/c ………………………….Dr.
To Debentureholders A/c
(Redemption of debentures)
Debenturesholders A/c………………………………………………...Dr.
To Bank A/c
(Payment to Debentureholders)
Sinking fund A/c……………………………………………………….Dr.

To Premium on redemption of Debentures A/c
9)
(Premium on redemption of Debentures written off)
6
45
03
Sinking fund A/c……………………………………………………….Dr.
To General reserve A/c
3
88
(Transfer of balance of sinking fund account to General Reserve)
(9
Note:
S
SE
 It may be noted that in the final year the amount appropriated from the profits of the
AS
company and the amount received as interest on sinking fund investment are not invested,
CL
as the amount would be needed on the following day for the redemption of debenture.
A
TI
3. Purchase from Open Market for immediate cancellation

O
Debentures A/c………………………………………………………..Dr.
AL
Debenture Interest A/c………………………………………………...Dr.

BH
Loss on Redemption of Debentures A/c……………………………...Dr.

To Bank A/c
To Profit on Redemption of Debentures A/c
(Being purchase of own debentures for immediate cancellation)
Profit on Redemption of Debenture A/c………………………….Dr.

To Capital Reserve
(Being Profit on Redemption of Debenture transferred to capital Reserve)

Statement of profit and loss………………………………………Dr.
To Loss on Redemption of Debentures A/c
(Being Loss on Redemption of Debenture transferred to Profit & Loss Account)

To Debenture Interest A/c

To Debenture Redemption Reserve A/c
(Or General Reserve)
(Being Transfer of profit to Debenture Redemption Reserve Or General Reserve)
6 9)
45
4. Purchase from Open Market & cancelled subsequently
03
Own Debentures A/c………………………………………………… Dr.
Debenture Interest A/c………………………………………………...Dr.
3
88
To Bank A/c
(9
(Being purchase of own debentures)

S
SE
AS
Debentures A/c………………………………………………………..Dr.
CL
Loss on Redemption of Debentures A/c……………………………...Dr.

A
To Own Debentures A/c

TI
To Profit on Redemption of Debentures A/c

O
AL
(Being own debentures cancelled )

BH
Profit on Redemption of Debenture A/c………………………….Dr.

To Capital Reserve
(Being Profit on Redemption of Debenture transferred to capital Reserve)

To Loss on Redemption of Debentures A/c
(Being Loss on Redemption of Debenture transferred to Profit & Loss Account)

1. Redemption of Debentures [Sinking Fund]
On 1st April 2014. H Ltd. issued 442, 10% Debentures of ₹ 1000 each at a discount of 10%
redeemable at a premium of 5% after 4 years. It was decided to create a Sinking Fund for the
purposes of accumulating sufficient funds to redeem the Debentures and to invest in some radily
convertible securities yielding 10% interest p.a. Reference to the table shows that ₹ 1.00 p.a. at 10%
compound interest amounts to ₹ 4.641 in 4 years. Investments are to be made in the Bonds of ₹
1000 each available at par. On 31st March 2018, the investments realised ₹ 3,40,000 and debentures
were redeemed. The bank balance as on that date was ₹ 50,000.
Required: Prepare Debenture Redemption Fund Account and Debenture Redemption Fund
Investments Account for 4 years.
9)
Solution:
6
45
DRF = Debenture Redemption Fund, DRFI = Debenture Redemption Fund Investment
3 03
Dr. Debentures Redemption Fund Investment (DRFI) Account Cr.
88
(9
Date Particulars ₹ Date Particulars ₹

S
SE
31.03.2015 To Bank A/c 1,00,000 31.03.2015 By Balance c/d 1,00,000

1,00,000 1,00,000
AS
CL
01.04.2015 To Balance b/d 1,00,000 31.03.2016 By Balance c/d 2,10,000

A
31.03.2016 To Bank A/c 1,10,000

TI
2,10,000 2,10,000
O
AL
01.04.2016 To Balance b/d 2,10,000 31.03.2017 By Balance c/d 3,31,000

BH
31.03.2017 T Bank A/c 1,21,000

3,31,000 3,31,000
01.04.2017 To Balance b/d 3,31,000 31.03.2018 By Bank A/c (Sales) 3,40,000

31.03.2018 To Debenture Redemption Fund A/c 9,000
(Profit)
3,40,000 3,40,000

Dr. Debenture Redemption Fund Account Cr.
Date Particular ₹ Date Particulars ₹

s
31.03.2015 To Balance c/d 1,00,000 31.03.2015 By P & L A/c 1,00,000
1,00,000 1,00,000
31.03.2016 To Balance c/d 2,10,000 01.04.2015 By Balance b/d 1,00,000

31.03.2016 By Interest on DRFI A/c 10,000
By P & L A/c 1,00,000
2,10,000 2,10,000
31.03.2017 To Balance c/d 3,31,000 01.04.2016 By Balance b/d 2,10,000

31.03.2017 By Interest on DRFI A/c 21,000
31.03.2017 By P & L A/c 1,00,000
3,31,000 3,31,000
9)
31.03.2018 Premium on redemption of 22,100 01.04.2017 By Balance b/d 3,31,000
6
Debentures A/c
45
03
To Debenture Redemption 4,51,000 31.03.2018 By Interest on DRFI A/c 33,100
Reserve A/c or General
3
Reserve A/c 88
31.03.2018 By P&L App. A/c 1,00,000
(9
By Debenture Redemption
Fund Investment A/c (Profit)
S
4,73,100 4,73,100
SE
Working Notes:
AS
(i) Calculation of the amount of profit set aside (Annual Contribution)

CL
a. Face Value of Debentures 4,42,000

A
b. Premium Premium Payable on Redemption 22,100

TI
c. Total amount required for redemption Cost (A + B) 4,64,100

O
AL
d. Value of annuity per Re 1 4,641

BH
e. Annual amount to be charged (C/D) 1,00,000

(ii) Calculation of the amount interest
Year (a) Opening Balance (b) Interest c= b×10/100
2014-15 — —
2015-16 1,00,000 10,000
2016-17 2,10,000 21,000
2017-18 3,31,000 33,100

2. Redemption of Debentures [Sinking Fund] [2010, 2017] *****
The Balance Sheet of ZENITH LTD. as at 1-4-2020 supplied the following information:
₹
13% Debenture A/c 7,00,000
Debenture Redemption Fund A/c 5,00,000
13% Debenture Redemption Fund Investment A/c 5,00,000
Annual contribution to the Debenture Redemption Fund 70,000
The Company sold the investment for ₹ 7,00,000 and the debentures were redeemed on 31.3.2021. Prepare
Debenture Account, Debenture Redemption Fund A/c & Debenture Redemption Fund Investment Account.
3. Redemption of Debentures [Sinking Fund] [2013/ 2015]******

The following balances appeared in the books of a limited company on 01.04.2020:
(i) 8% Debentures Account - ₹ 1, 20,000
(ii) Sinking Fund Account - ₹ 1, 00,000
9)
(iii) Sinking Fund Investment Account - ₹ 1, 00,000
6
45
(Investment in 6% Govt. Loan, nominal Value being ₹ 1, 10,000)
On 31.03.2021 annual contribution added to the Sinking Fund was ₹ 13,400. Interest for the year was
03
received. All the investments were realised at 90% of nominal value and Debentures were paid off at par.
3
Balance at Bank on that date was ₹ 42,500. Show the necessary ledger accounts in the books of the
88
company for the year ended 31.03.2021.
(9
[Amount realised on sale of Investment ₹ 99,000; Sinking Fund balance transferred to G.R ₹ 1,19,000]
S
SE
4. Redemption of Debentures [Sinking Fund] [2016 Pass]****

AS
The following balances appeared in the books of Roy Co. Ltd. on 1.4.21:
(a) Debenture redemption fund account : ₹ 40,000 represented by Investments at cost of an equal amount
CL
(nominal value ₹ 50,000).

A
(b) The 12% debentures stood at ₹ 90,000.

TI
The company sold investments of the nominal value of ₹ 30,000 @ ₹ 90 for the purpose of redemption of ₹
O
26,000 debentures at a premium of 2 per cent.

AL
Show the: (i) 12% debentures account ; (ii) Debenture redemption fund account ; (iii) Debenture redemption
fund investment account. (Ignore interest, brokerage etc.)
BH
[Profit on sale of investments transferred to Debenture Redemption Fund A/c ₹ 3,000.
5. Redemption of Debentures [Sinking Fund]**

The following balances appeared in the books of X Ltd. on 1.4.2021:
(i) Sinking Fund Account — Rs 50,000;
(ii) Sinking Fund Investment Account — Rs 48,000; (10% Government Securities, nominal value Rs 45,000);
(iii) 12% Debentures Account — Rs 1,00,000.
The company sold ₹ 30,000 Government Securities at 110 % and redeemed part of the debentures at a
premium of 10%. Show Debentures Account, Sinking Fund Account and Sinking Fund Investment Account.

6. Redemption of Debenture ******
On 1.1.2017 M. P Ltd. issued Debentures for ₹ 1,00,000 redeemable at par at the end of 5 years and it was
resolved that a Sinking Fund should be formed and invested in Tax-free Securities.
Show the Ledger Accounts for five years, assuming that the interest rate was 5% p.a. and that it was re-invested.
The Investments were realized at a loss of ₹ 300 at the end of 5 years.
Reference to the table shows that ₹ 0.180975 invested at the end of each at 5% compound
interest will produce ₹ 1 at the end of 5 years.
[Amount realised on sale of Investments ₹ 77,702.50; Interests for 5 years Nil, ₹ 904.88, ₹ 1,855, ₹
2,852.62 and ₹ 3,900.12; Annual contribution ₹ 18,097.50]
7. Redemption of Debentures [B. Com. (Hons.) 2012] ****

A Ltd. issued 8 % Debentures of ₹ 3, 00,000 in earlier year on which interest is payable half-yearly on 31st
March and 30th September. The company has power to purchase its own debenture in the own debenture in the
open market for cancellation thereof subsequently. The following purchases were made during the financial year
9)
2020-21 and cancellation was done on 31st March, 2021:
6
45
(a) On 1st April, 2020: ₹ 50,000 Nominal Value, Purchased for ₹ 49,450 (ex-interest)
(b) On 1st September, 2020: ₹ 30,000 Nominal Value, Purchased for ₹ 30,250 (Cum-interest).
03
Show the journal entries for the transactions that took place in the financial year 2020-21.
3
88
8. Redemption of Debentures [B. Com. (Hons.) 2014 type] **
(9
Silicon Ltd. has ₹ 1,50,000; 6% Debentures on 1.1.2021. There is no Sinking Fund for redemption of
S
debenture Interest is payable on 31st December each year.

SE
(i) On 1.4.2021 ₹ 10,000 own debentures were purchased at ₹ 94 cum-interest by Silicon Ltd. and
AS
immediately cancelled.
(ii) On 1.6.2021 ₹ 25,000 own debentures were purchased at ₹ 95 cum-interest and held as investment.
CL
(iii) On 1.10.2021 ₹ 30,000 own debentures were purchased at ₹ 96 ex-interest and held as investment.
A
(iv) On 31.12.2021 own debentures kept as investments were cancelled.

TI
Show journal entries in the books of the company. Date of closing of books of account is 31st December.
O
AL
9. Redemption of Debentures [B. Com. (Hons.) 2018] ****

BH
Silicon Ltd. issued 8% Debentures of ₹ 4,00,000 in earlier year on which interest is payable half-early on 31st
March and 30th September. The Company has power to purchase its own debentures in the open market for
cancellation thereof subsequently. The following purchases were made during the financial year 2020-21 and
cancellation was done as 31.03.2021:
a) On 01.04.2020 ₹ 60,000 Nominal value, Purchased for ₹ 59,340 (ex-interest)
b) On 01.09.2020 ₹ 40,000 Nominal value, Purchased for ₹ 40,333 (cum-interest)
Show the journal entries for the transaction that took place during 2020-21.

Valuation of Goodwill [10 Marks]

1. Average Profit Method:-
a. Simple Average Method = Simple Average trading Profit after tax x Years of Purchase
b. Weighted Average Method = Weighted Average trading Profit after tax x Years of Purchase
∑(𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊ℎ𝑡𝑡𝑡𝑡 𝑥𝑥 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑡𝑡𝑡𝑡𝑡𝑡)

Weighted Average Profit =
∑𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊ℎ𝑡𝑡𝑡𝑡
2. Super Profit Method = Super Profit x Years’ of Purchase

Super Profit (Additional Profit):
6 9)
Average Trading Profit after tax 
45
Less: Normal Profit (Closing or average Capital Employed x Normal Rate of Return) 
03
Less: Fair Remuneration to Partner 
3
88
Super Profit 
(9
S
SE
Computation of Average Trading Profit after tax:

AS
Average Profit before Tax 

CL
Add: Non-Operating Expenses (Debenture Interest) 

A
Add: Non-Recurring Expenses 

TI
Less: Non-Operating Income (Interest on Investment) 

O
AL
Less: Non-Recurring Income 

BH
Average trading Profit before Tax 

Less: Tax 
Average trading Profit after Tax 

Complutation of closing Capital Employed: (Two types of Approaches)
Assets Approach –
Fixed Assets (Excl. G/Will) (Revalued Figure) 
Add: Current Assets (Revalued Figure) 
Less: Current Liabilities(Revalued Figure) 
Liabilities Approach –
Share Capital 
Add: Reserve & Surplus 
Add: Revaluation Profit 
Add: Long-Term Loan 
Less: Goodwill 
9)
Less: Investment 
6
45
Less: Revaluation Loss 
Less: Misc. Expenditure 
03
Less: P/L (Deficit Balance) 
3
88
Note: If Capital Employed is given:-
(9
Capital Employed 
Add: Revaluation Profit 
S
SE

AS
Average Capital Employed = Closing Capital Employed – ½ of Average Trading Profit

CL
3. Annuity Method = Super Profit x Annuity Factor

A
TI
𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃
4. Capitalisation of super profit Method =
O
𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑜𝑜𝑜𝑜 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅

AL
5. Capitalisation of average profit Method

BH
Goodwill = Capitalised Value – Net Assets of Business
Net Assets means All Assets (other than fictitious assets, goodwill and non-trade investments) at their
current values – Outsider’s Liabilities.

1. Valuation of Goodwill [C.U B.com 1995]*****
M Ltd proposed to purchase the business carried on by N Ltd. Goodwill for this purpose is agreed to be valued
at three years purchase of the weighted average profits of the past four years. The approximate weight to be
used and profits for the year are as under:
The appropriate weights to be used are:
2018 – 1
2019 – 2
2020 – 3
2021 – 4
The profits for these years are:
2018 – ₹ 1,01,000
2019 – ₹ 1,24,000
2020 – ₹ 1,00,000
2021 – ₹ 1,50,000
The books of account were closed every year on 31st March. On a scrutiny of the accounts, the following
matters are revealed:
(a) On 1st December, 2021, major repairs were carried out in respect of the plant, spending ₹ 30,000
9)
which was charged to revenue. The said sum is agreed to be capitalized for goodwill calculation subject
6
to adjustment of depreciation @ 10% per annum on reduction balance method.
45
(b) The closing stock on 31st March, 2021 was overvalued by ₹ 12,000.
03
(c) To cover management cost, an annual charge of ₹ 24,000 should be made for the purpose of valuation
of goodwill.
Compute the value of goodwill of the business.
3
88
Solution
(9
2018 2019 2020 2021

S
Profits Rs. 1,01,000 1,24,000 1,00,000 1,50,000

SE
Less: Management Expenses 24,000 24,000 24,000 24,000

AS
77,000 1,00,000 76,000 1,26,000

CL
Less: Overvaluation of stock (-) 12,000

Add: Overvaluation of stock (+) 12,000
A
Add: Major repair cost (+) 30,000

TI
Less: Depreciation (-) 1,000

O
(10% for 4 months on 30,000)

AL
Less: Depreciation (-) 2,600

BH
[30,000 – 1,000 = 29,000 x 10/100]

Adjusted Profit 77,000 88,000 1,17,000 1,23,100
Average Profits calculated

2018 Rs. 77,000 x 1 77,000
2019 Rs. 88,000 x 2 1,76,000
2020 Rs. 1,17,000 x 3 3,51,000
2021 Rs.1,23,100 x 4 4,92,400
Total 10,96,400
Average Profit : 10,96,400 / 10 = Rs. 1,09,640
Goodwill at 3 years purchase = Rs. 1,09,640 x 3 = Rs. 3,28,920

2. Valuation of Goodwill [C.U B.com 2004]*
The following are the particulars about Gupta & Co, a partnership firm :
(a) Average capital employed in the business" is ₹ 7,00,000.
(b) Net trading profit of the firm for the past three years : ₹ 1,07,600, ₹ 90,700 and ₹ 1,12,500.
(c) Market rate of interest on investments 8%.
(d) Rate of risk return on capital invested in business 2%.
(e) Fair remuneration to the partners for their services ₹ 12,000 per annum.
(f) Profits included non-recurring profits on average basis of ₹ 1,000 out of which it was considered that
even non-recurring profits had a tendency to be recurring at an average rate of ₹ 600 per year.
(g) Sundry assets of the firm amounted to ₹ 7,50,000 and current liabilities ₹ 30,000.
Ascertain the value of goodwill of the firm under the following methods :
(i) Three years' purchase of super-profits method. (ii) Capitalisation method.
[(i)₹ 63,600 ;(ii)₹ 2,12,000]
9)
3. Valuation of Goodwill [B.com 2016 Honours] *****
6
From the following particulars of a company, ascertain the value of goodwill under the following under the
45
followings methods:
03
i. 3 years’ purchase of super profit method and,
3
ii. Capitalizations method 88
iii. Annuity of super profit method when Present value of an annuity of ₹ 1.00 for 3 years at 10 % interest
is 2.49.
(9
Particulars:
S
a. Average Capital Employed in the business is ₹ 14,00,000.

SE
b. Net Trading Profit of the firm for past 3 years: ₹ 2,15,200; ₹ 1,81,400 and ₹ 2,25,000.
AS
c. Market rate of interest on investment- 8 %.

d. Rate of risk return on capital invested in business is 2%.
CL
e. The profit included non-recurring profits on average basis of ₹ 2,000 out of which it was considered
that even non-recurring profits had a tendency to be recurring at an average rate of ₹ 1,200 per year.
A
f. Sundry assets of the company ₹ 15,00,000 and current liabilities ₹ 60,000. Ignore taxation.
TI
O
4. Valuation of Goodwill [C.U B.com 1995]*****

AL
Calculate goodwill as per (a) annuity method ; (b) five years purchase of super-profits method and (c)
BH
capitalisation of super profits method from the following information :

(i) Capital employed ₹ 6,30,000
(ii) Normal rate of profit 10 %
(iii) Present value of an annuity of ₹ 1 for 5 years at 10% 3.77545
(iv) Net profits before taxation (tax rate 50 %):
1st year ₹ 1,05,000 ;
2nd year ₹ 1,45,000 ;
3rd year ₹ 1,75,000 ;
4th year ₹ 2,00,000;
5th year ₹ 1,50,000.
(v) Non-trading income ₹ 5,000 and debenture interest ₹ 10,000 on an average included in P/L A/c.
(vi) Fixed assets revalued by ₹ 20,000 more than existing book value of the assets.

5. Valuation of Goodwill [C.U B.com Honours 1982]*
From the following information, prepare statements showing:
(i) Capital Employed
(ii) Average capital Employed
(iii) Goodwill on the basis of 5 year’s purchase of the average super-profit.
Balance Sheet of Z ltd as on 31.12.2021
Liabilities Rs Assets Rs
20,000 Equity Shares of ₹ 10 each 2,00,000 Goodwill 30,000
1,000, 9 % pref. sh of ₹ 100 each 1,00,000 Fixed Assets 3,50,000
Reserve & Provision (including Investment in 6 % Govt. Loan 45,000
Prov. for taxation ₹ 20,000) 2,00,000 Current Assets 2,00,000
10 % Debentures 90,000 Share Selling Commission 10,000
Creditors 60,000 Discount on issue of debentures 15,000
6,50,000 6,50,000
9)
The current market value of the plant included in fixed assets is ₹ 15,000 more. The average profit of the
6
company (after deductions for interest & Govt. taxes) is ₹ 68,000. Expected rate of return is 10 %.
45
[Closing capital Employed ₹ 4,85,000; Average capital Employed ₹ 449425; Goodwill ₹ 1,26,035]
03
6. Valuation of Goodwill [C.U B.com 2013 Pass]****
3
88
Balance Sheet of Ex. Td. As on 31.03.2021 is as follows:
(9
Share Capital 6,00,000 Fixed Assets 3,70,000
S
SE
Reserves and Surplus 50,000 Stock 2,20,000

Sundry Creditors 1,70,000 Debtors 2,80,000
AS
Proposed Dividend 60,000 Cash 20,000

CL
Provision for tax 10,000

8,90,000 8,90,000
A
The net profits of the company before tax were: 2017 – 18: ₹ 3, 18,000, 2018 – 19: ₹ 3, 40,000, 2019 - 20: ₹
TI
3,12,000. On 31.03.2021 the fixed assets are valued at ₹ 4, 50,000. Sundry debtors on the same date
O
included ₹ 10,000 which is unrealizable. Having regard to the type of a business a 10% return on capital
AL
employed is considered as reasonable. Assume tax rate as 30%.

BH
Ascertain the value of goodwill on the basis of three years purchase of annual super profits.
[Ans. Value of goodwill ₹ 4,45,000]

7. Valuation of Goodwill [B.com 2014 Honours] *****
The following information relates to company as on 31st March, 2021.
Equity share capital (₹ 10) ₹ 5,00,000
10% preference share capital ₹ 2,00,000
Reserve and surplus ₹ 70,000
9 % Debentures ₹ 1,00,000
Depreciation fund ₹ 60,000
Trade payables ₹ 50,000
Unamortized preliminary expenses ₹ 20,000
Market value of the assets ₹ 70,000 more than the book value.
Profits for last 3 years after 40% tax were ₹ 75,000, ₹ 84,000 and ₹ 144000 respectively. Fair return on capital
employed in this type of business is estimated at 10%.
You are required to calculate the value of goodwill by capitalization of super profits. (Take weighted average
profit)
[Ans. Value of goodwill ₹ 2,59,000; Capital Employed ₹ 9,20,000; Weighted Average Profit ₹ 1,17,900]
6 9)
8. Valuation of Goodwill [B.com 2018 Honours] ******
45
From the following information calculate the value of goodwill as on 31.03.21:
03
a) Equity share capital (₹ 10) ₹ 4,00,000
3
b) 10% Pref. Share capital ₹ 1,00,000. 88
c) Reserve & Surplus ₹ 90,000
d) 9% Debenture ₹ 1,00,000
(9
e) Depreciation fund ₹ 60,000

S
f) Creditors ₹ 70,000.
SE
g) Market value of Assets is ₹ 90,000 more than the book value and non-trade investment included in
AS
assets ₹ 1,30,000.
h) Profits for last three years after 40% tax were:
CL
2018-19: ₹ 84,000, 2019-20: 1,08,000 and 2020-21: ₹ 1,05,000 respectively.

i) Non-trade income of ₹ 14,400 (before tax) is included in the amount of profit for 2019-20 only.
A
j) Fair return on capital employed in this type of business is estimated at 12%.

TI
k) Goodwill is to be valued on the basis of 4 years purchase of Super Profit.(Take simple average profit)
O
AL

BH
From the information given below calculate the value of Goodwill by Capitalisation of Average Operating
Profit:
Capital and liabilities of the company (as per its Balance Sheet as on 31-3-2021) includes the following:
Shareholders’ fund ₹ 12,50,000
7% Debentures ₹ 4,50,000
Profits after charging 40% income tax for the last three years were:
2018-19: ₹ 1,56,000, 2019-20: ₹ 1,84,000 and 2020-21: ₹ 1,76,000
It was found that, in 2018-19 the company purchased a machine at ₹ 50,000 and charged the same against its
profit. The company charges depreciation @ 20% on WDV of such machinery. Debentures were issued prior
to 2018-19.
Similar companies earn after tax operating profit @ 8%. [Consider simple average profit]
Following information relate to a company as on 31.03.2021:
(a) Equity Share Capital: 40,000 shares of ₹ 10 each fully paid and 25,000 shares of ₹ 10 each, ₹ 4 paid.
(b) 9%, Pref. Shares Capital ₹ 3, 00,000.
(c) Reserve & Surplus ₹ 90,000.
(d) 12% Debentures ₹ 2, 50,000.
(e) Assets include a non – trade investment, the market value of which is ₹ 1,20,000 (Book value being ₹
1,40,000)
(f) Before tax profits for last three years were ₹ 95,000, ₹ 1, 25,000 and ₹ 1, 40,000 respectively
(including income from non – trade investment of ₹ 10,000 on an average.)
(g) Rate of income tax is 30%.
(h) Fair Return on Capital Employed in this type of business is estimated at 9%.
You are required to calculate –
(i) The value of goodwill using 3 years’ purchase of Super Profit Method, and
9)
(ii) The value of each fully paid equity share taking the value of goodwill as computed in ‘a’.
6
(Take simple average profit).
45
[Ans. Value of goodwill ₹ 24,000; Capital Employed ₹ 10,00,000; Super Profit ₹ 8,000, Value/share ₹ 11.45
03
& ₹ 5.45.
3
88
(9
The following particulars of A.Ltd are given below:
(a) Equity share capital: 20,000 equity shares of ₹ 10 each fully paid
S
SE
(b) Preference share capital: 2,000, 8% preference shares of ₹ 100 each fully paid
AS
(c) Reserves and Surplus: ₹ 1,00,000

(d) Trade Payables: ₹ 40,000
CL
(e) Average normal profit after tax earned in each year by the company ₹ 60,000
A
(f) Transfer to General Reserve – Nil.

TI
(g) Profit on revaluation of tangible assets – ₹ 40,000

O
AL
(h) Fictitious items included in the assets of the company – ₹ 10,000

(i) Normal rate of return earned in respect of the equity shares of the same type of
BH
company is ascertained at 10%.

(j) Ignore Goodwill.
Compute the value of the company’s share by
(i) Asset-backing Method and
(ii) Earnings Yield Method.

Valuation of Shares
[10 Marks]
There are three types of method:
a. Intrinsic Value Method/Assets Backing Method
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑆𝑆ℎ𝑎𝑎𝑎𝑎𝑎𝑎ℎ𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹
Value/Equity Shares =
𝑁𝑁𝑁𝑁.𝑜𝑜𝑜𝑜 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑆𝑆ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎
Equity Shareholder Fund:-

Equity Share Capital 
Add: Reserve & Surplus 
Revaluation Profit 
Miscellaneous Expenditure (Fictitious Assets, Prel. Exp. Etc.) 
6 9)
b. Dividend Yield Method/Earning Capacity Method
45
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑜𝑜𝑜𝑜 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 (𝑜𝑜𝑜𝑜 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸)
Yield Value/Shares = x Paid up value/Share
𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑜𝑜𝑜𝑜 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 (𝑜𝑜𝑜𝑜 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅)
3 03
𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑡𝑡𝑡𝑡 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑆𝑆ℎ𝑎𝑎𝑎𝑎𝑎𝑎ℎ𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜
Expected Rate of Dividend = x 100
88
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑆𝑆ℎ𝑎𝑎𝑎𝑎𝑎𝑎 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑈𝑈𝑈𝑈)
(9
Dividend available to Equity Shareholder:-

S
Average Profit before Interest & Tax 

SE
Less: Interest (Loan & Debenture x Interest %) 

AS
Average Profit before Tax 

Less: Tax (Profit before Tax x Tax %) 
CL
Average Profit after Tax 

A
Less: Preference Dividend (Pref. Sh. Capital x Dividend %) 

TI
Earnings available to Equity Shareholder 

O
Less: Transfer to Reserve 

AL
Dividend available to Equity Shareholders 

BH
c. Fair Value Method

𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑀𝑀𝑀𝑀𝑀𝑀ℎ𝑜𝑜𝑜𝑜+𝑌𝑌𝑌𝑌𝑌𝑌𝑌𝑌𝑌𝑌 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑀𝑀𝑀𝑀𝑀𝑀ℎ𝑜𝑜𝑜𝑜
Value/Shares =
2

1. Valuation of Shares
The following is the condensed balance sheet of P Ltd on 31.3.04:
Equity and Liability ₹
40,000 equity shares of ₹ 10 each 4,00,000
Reserves 90,000
Surplus in profit and loss statement 20,000
current liabilities 1,30,000
7,40,000
Assets
Tangible fixed Assets 5,00,000
Goodwill 40,000
Current assets 2,00,000
7,40,000
9)
On 31st December 2004, the fixed assets were independently valued at ₹ 3, 50,000 and the goodwill at ₹
6
50,000. The net profits for the three years were: 2002 ₹ 51,600; 2003 ₹ 52,000 and 2004 ₹ 51,650 of which
45
20% was placed to Reserve Account and this proportion being considered reasonable in the industry in which
03
the Company is engaged and where a fair investment return may be taken at 10%. Compute the value of the
Company’s share by (a) the Assets Method and (b) the Yield Method.
3
88
(9
S
SE
AS
CL
A
TI
O
AL
BH

2. Valuation of Shares [B.com 2007]**

The following particulars are available in relation to Hari Pvt Ltd. Co.
9)
(a) Capital: 6,000, 6% Preference Shares of ₹ 100 each fully paid and 5,000 Equity Shares of ₹ 100 each
6
fully paid.
45
(b) External Liabilities - ₹ 75,000;
03
(c) Reserved & Surplus - ₹ 50,000;
3
(d) The average expected profit (after tax) -₹ 90,000; 88
(e) The normal Profit earned on the market value of Equity Shares of the same Company -10 %.
(f) Transfer to Reserve - 10% of the Net Profit.
(9
Calculate the intrinsic value per Equity Share and the value per Equity Share according to Dividend Yield
S
Basis. Assume that total assets include ₹ 30,000 fictitious assets..

SE
AS
3. Valuation of Shares [C.U., B.Com. 2015 Pass]***

CL
The following particulars of a company are available:

a) Equity Share Capital:
A
1,000 Equity shares of ₹ 100 each fully paid.

TI
Preference Shares Capital:

O
10,000, 12% Preference shares of ₹ 10 each fully paid.

AL
b) Reserve and surplus ₹ 25,000.

BH
c) External Liabilities:
Creditors – ₹ 30,000
Bills payable – ₹ 10,000.
d) The average normal profit (after taxation) earned each year by the company, ₹ 35,000. Assets of the
company include one fictitious item ₹ 3,000.
The fair or normal rate of return in respect of the Equity share and preference share of this type of
company is ascertained at 10%.
Calculate the value of each type of share by:
i. The Assets Backing Method.
ii. The Earning Capacity Method.
[Answer: Intrinsic value ₹ 122. Yield value ₹ 230]

4. Valuation of Shares [C.U., B.Com. Hons. 2013]***
The following particulars of Jupiter Co. Ltd. Are available:
Fixed Assets – ₹ 5, 80,000; Goodwill – ₹ 50,000; Current Assets – ₹ 1, 80,000; Discount on Issue of
Debentures – ₹ 10,000; 5% Debentures – ₹ 1, 00,000; Current Liabilities – ₹ 1, 30,000. The net profit after
tax for three years were: 2019 – ₹ 51,600; 2020 – ₹ 52,000; 2021 – ₹ 51,650 of which 20% was placed to
reserve and fair rate of return on investments is 10%. Issued Capital was 40,000 Equity Shares of ₹ 10 each
fully paid up. Compute the value of the company’s shares by
(a) The Assets Backing Method,
(b) The Dividend Yield Method.
[Ans: ₹ 14.50 & ₹ 10.35]
5. Valuation of Shares [B.com 2009]****

The capital structure of M Ltd. is as follows : ₹
9)
14% Preference shares of ₹ 10 each 20,00,000
6
Equity shares of ₹ 10 each 32,00,000
45
Reserve & Surplus 16,00,000
03
10% Debentures 24,00,000
11% Loans from banks/financial institutions 28,00,000
3
88
1,20,00,000
The average annual profit before payment of tax and interest is ₹ 24,00,000. The income- tax rate is assumed
(9
to be @ 50 %. Compute the value of equity shares of the company, if the applicable price-earning ratio is 9.
S
[Ans. Value of Equity share under: (i) Asset Backing Method ₹ 15; (ii) Earning Method ₹ 18.18; (iii)
SE
Fair Value ₹ 16.59]

AS
CL
6. Valuation of Shares [C.U., B.Com. (Hons.) 1984]****

Determine, from information below the value of each class of Equity Shares both under Assets Backing Method
A
and Earning Capacity Method:

TI
O
(i) Paid of Share Capital (on 31.12.21):-

AL
30,000 Equity Shares of ₹ 10 each fully paid up 3,00,000

25,000 Equity Shares of Rs .10 each ₹ 6 per Share called and paid up 1,50,000
BH
500 12% Preference Shares of ₹ 100 each fully paid up 50,000

General Reserve A/c 1,19,500
Profit and Loss A/c (Cr.) 80,000
(ii) The Preference Share are preferential as to return of capital but do not participant in any surplus assets in case
the company is wound up.
(i) The average annual profits of the company are ₹ 59,200.
(ii) All assets are worth their Book-Values.
(iii) 10% Return is considered fair in this type of company.
[Ans: (a) Assets Backing Method ₹ 13.63 & ₹ 9.63; (b) Earning Capacity Method: ₹ 11.82 & ₹ 7.09]

7. Valuation of Shares [C.U., B.Com. (Hons.) '05]
The following particulars are available in relation to A Ltd.
(i) Equity share capital: 5,000 Equity shares of ₹ 20 each.
(ii) Preference share capital: 1,000 8% preference shares of ₹ 100 each.
(iii) Reserves ₹ 30,000.
(iv) Current Liabilities ₹ 18,000.
(v) Loss on revaluation of fixed assets ₹ 12,000.
(vi) Average trading profit ₹ 30,000 (after tax)
(vii) Normal rate of return on capital employed 10%.
Calculate intrinsic value per equity share (assuming goodwill is to be valued at 3 years’ purchase of super-
profits).
[Super profits ₹ 8,200. Value of goodwill ₹ 24,600. Value per share ₹ 28.52]
8. Valuation of Shares [ICSI, Inter. June 2004] ****
9)
On the basis of the following information, calculate the value of equity shares:
6
45
₹
5,000 6% preference shares of ₹ 100 each, fully paid 5, 00,000
03
30,000 equity shares of ₹ 10 each fully paid 3, 00,000
3
Total tangible assets (other than goodwill) 88 9, 49,000
Total outside liabilities 95,000
(9
Average net profit after tax 62,560
Expected normal yield for equity shares is 7% of capital employed. Goodwill is to be taken at 5 years’
S
SE
purchase of super profits, if any.

[Ans. Value of goodwill ₹ 13,900. Intrinsic value per equity share ₹ 12.26; Yield value ₹ 15.55/sh]
AS
CL
9. Valuation of Shares [C.U., B.Com. (Hons.) 1984] ****

A
The following particulars relate to Titco Ltd.:

TI
(i) Equity Share Capital:-

O
10,000 Equity Shares of ₹ 10 each, fully paid up

AL
5,000 Equity Shares of Rs .10 each, ₹ 7 paid up

(ii) Preference Share Capital:-
BH
1,000 10% preference shares of ₹ 100 each fully paid up.

(iii) Reserves ₹ 45,000.
(iv) Creditors ₹ 20,000; Bills payable ₹ 3,000.
Besides the above extracts form the balance sheet of Titco Ltd. As on 31.12.21, the following further information
is given to you:
(1) Value of fixed assets to be raised by ₹ 25,000 whereas stock value to be reduced by ₹ 7,000.
(2) Liability for expenses ₹ 6,000 is yet to be recorded in the books of account.
Calculate value per equity and preference share of Titco Ltd. When: (a) Preference shares are non-participating.
(b) Preference shares are participating and ratio of participation in surplus assets between equity and preference is
3:2.

10. Valuation of Shares [C.U., B.Com. Hons. 2012]****
Balance Sheet of Diamond Ltd. As on 31.03.2021 is given below:
15,000 Equity Shares ₹ 10 fully Sundry Fixed Assets 2,20,000
paid up 1,50,000 Investments 40,000
20,000 Equity Shares ₹ 10; ₹ 6 Stock 80,000
paid up 1,20,000 Debtors 40,000
9% cumulative Preference Shares Cash at Bank 40,000
Long Term Loan 60,000 Profit & Loss Account 1,30,000
80,000
5,50,000 5,50,000
Further Information:
9)
(a) Current Cost of Sundry Fixed Assets is ₹ 3, 70,000 and that of Stock is ₹ 1, 00,000.
6
(b) Investment could fetch only ₹ 10, 000.
45
(c) 50% of Debtors are doubtful.
03
(d) Preference dividend is in arrear for the last five years.
Find out the intrinsic value of each Equity Share of the company.
3
88
[Ans: ₹ 8.94 & ₹ 4.94]
(9
S
11. Valuation of Shares [C.U., B.Com. Hons. 2015]***

SE
Following particulars are available in relation to A Ltd. :

AS
(a) Equity share capital – 4,000 equity share Rs 100, fully paid.
CL
(b) 1000, 8% preference share of ₹ 100 each.

(c) Reserve and surplus ₹ 1, 25,000.
A
(d) 10% debenture Rs 4, 00,000.

TI
(e) Profit on revaluation of Assets ₹ 92,000.

O
(f) EBDIT ₹ 2, 74,000.

AL
(g) Depreciation ₹ 50,000.

BH
(h) Income Tax rate is 30%.

(i) E/P ratio in the industry is 1/8 and dividend yield is 16%.
(j) During the last three the company paid dividend at 20%, 19% and 27% respectively.
Calculate the market price of each equity share under earning method and dividend method.
[Intrinsic value ₹ 154.25; Yield Value ₹ 241.60; ₹ 137.50]

Final Account of companies

[15 Marks]
SCHEDULE III TO COMPANIES ACT, 2013
FORMAT OF STATEMENT OF PROFIT AND LOSS

Name of the company:…………………………………………
Profit and Loss for the year ended …………………………………………………………figure in ₹
Lakhs
Particulars Note No Figures for the Figures for the
current previous
reporting period reporting period
I: Income
9)
(a) Revenue from operation
6
(b) Other income
45
Total Revenue (a + b)
03
II. Expenses:
(a) Cost of material consumed
3
(b) Purchase of stock-in-trade
88
(9
(c) Change in inventories of Finished
Goods / Work- in- progress and Stock-
S
SE
In-Trade
AS
(d) Employee benefits expense

(e) Finance costs
CL
(f) Depreciation and amortisation expense

(g) Other expenses
A
TI
Total expenses
O
AL
Profit before tax (I - II)

BH
Less: Provision for Tax

Profit/(loss) for the period

FORMAT OF BALANCE SHEET
Name of the company .................
Balance Sheet as at ...................... Figures in ₹ Lakhs
Particular Note No. Figures as at the Figures as at the

end of current end of previous
reporting period reporting period
I EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
(2) Share Application Money Pending
Allotment
(3) Non-Current Liabilities
9)
(a) Long term borrowings
6
45
(4) Current Liabilities
(a) Short term borrowings
03
(b) Trade payable
(c) Other current liabilities
3
88
(d) Short term provision
(9
Total
S
II Assets
SE
1). Non-Current Assets

AS
(a) Property, Plant & Equipment &

Intangible Assets
CL
(i) Property, Plant & Equipment

A
(ii)Intangible assets
TI
(b) Non-current investment

O
(c) Long term loan and advances

AL
(d) Other non-current Assets

2). Current Assets
BH
(a) Current investment

(b) Inventories
(c) Trade receivable
(d) Cash and cash equivalent
(e) Short term loan and advances
(f) Other current assets
Total

Notes:
(1) Revenue from Operations
Particulars Amount
Net Sales
Other Operating revenue
Discount Received
Commission Received
Total
(2) Other Income

Particulars Amount
Rent Received
Dividend Received
Interest from Received
Transfer fees
9)
Total
6
45
(3) Cost of Material Consumed
03
Particulars Amount
Opening Stock of Raw Material
3
88
Add: Purchase of Raw Material
(9
Less: Closing Stock of Raw Material
S
Total
SE
AS
(4) Purchases Purchase of stock-in-trade

Particulars Amount
CL
Gross Purchases
Less: Purchase Return
A
TI
Total
O
AL
(5) Change in Inventories

Particulars Amount
BH
Opening Stock
Less: Closing Stock
Total
(6) Employee Benefit Expenses

Particulars Amount
Salaries and Wages,
Bonus, Gratuity and allowances
Staff welfare expense
Total

(7) Finance Cost
Particulars Amount
Interest expenses
Other Borrowing cost
Total
(8) Depreciation and Amortization

Particulars Amount
Depreciation on tangible fixed assets
Amortization on intangible fixed assets
Total
(9) Other Expenses

Particulars Amount
9)
Rent
Insurance
6
45
Rates and taxes (other than income tax)
Donation
03
Payment to auditor
(a) For accounting & Audit work
3
88
(b) For Taxation
(9
(c) For other Services
S
Legal, charges
SE
Advertisement, Commission on sales

AS
Director fees
Miscellaneous
CL
Total
A
TI
(10) Share Capital

O
Particulars Amount
AL
Authorised Share Capital

………equity shares @.....each
BH
……..Preference shares @...each

Total xxx
Issued & Subscribed Share Capital
……..equity shares@.....each
……..Preference shares @....each
Total xxx
Paid-up Share Capital
………equity shares @.............each
………Preference shares @............each
Total xxx

(11) Reserves and Surplus
Particulars Amount Amount
Capital Reserves
Securities Premium Account
General reserve:
Opening Balance
Add: Transfer to General Reserve
Statement of profit and loss
Opening Balance
Add: Net Profit after Tax
Less: Transfer to General Reserve
Less: Transfer to Proposed Dividend
Less: Interim Dividend
Total
Note: Negative balance if any in profit & loss account should be presented in the head of reserve and surplus is
9)
negative item. Similarly if there is negative balance in any reserve after adjustment then that reserve should be
6
45
presented in the head also as negative item.
03
(12) Long-term Borrowing
3
Particulars Amount
88
Debenture
(9
Term loan from Bank
Total
S
SE
AS
(13) Short-term Borrowing

Particulars Amount
CL
Bank O/D
Other Short term loans and advances
A
TI
Total
O
AL
(14) Trade Payable

Particulars Amount
BH
Creditors
Bills payables
Total
(15) Other Current Liabilities

Particulars Amount
Interest accrued but not due
Interest accrued & due
Unpaid and unclaimed dividend
Outstanding expenses

(16) Short-term Provision
Particulars Amount
Provision for dividend including dividend distribution tax
Provision for income tax
Proposed Dividend
Other provisions
Total
(17) Property, Plant & Equipment

Particulars Amount
1 Land
2.Buildings
3 Plant & equipment
4 Furniture & fixtures
5 Vehicles
9)
6 Office Equipments
6
45
Total
03
(18) Intangible
Particulars
3 Amount
88
1 Goodwill
(9
2 Brands/trades Marks
S
4 Copyrights:
SE
5 Patents
AS
Total
CL
(19) Non-current Investment

Particulars Amount
A
TI
Investment in equity shares

O
Investment in pref. shares

AL
Investment in debenture or Bond

Total
BH
(20) Other non-current Assets"

Preliminary Expenses
Discount of issue of share & Debenture
Total
(21) Long-term loans and Advances

Particulars Amount
Security Deposit
Total

(22) Current Investment
Particulars Amount
Investment in equity shares for short term
Investment in pref. shares for short tem
Total
(23) Inventories
Particulars Amount
Raw material
Work in progress
Finished goods
Stores and spares
Loose tools
Total
9)
(24) Trade Receivable
6
45
Particulars Amount
Debtors
03
Bills Receivable
Total
3
88
(9
(25) Cash & Cash Equivalent

S
Particulars Amount
SE
Balance with Bank

AS
Cash on Hand
Total
CL
A
(26) Short-term Loans and Advances

TI
Particulars Amount
O
Loans and advances to director for short term

AL
Advance Tax
BH
Total
(27) Other Current Assets

Particulars Amount
Accrued Income
Prepaid Expenses
Total

1. Final Account
The following balances are extracted from the books of K Ltd.
Particulars (₹) ( ₹)
Land and building 51,12,000
Furniture and fittings 2,66,000
Capital work in progress 98,000
Calls in arrear 50,000
Cash in hand 10,000
5% tax free govt loan (FV ₹ 2,00,000) 19,7,600
Bills receivable 2,72,000
Goodwill 3,20,000
Trade debtors 4,16,000
9)
Trade creditors 6,12,000
6
45
Profit and loss account (1.4.2020) 1,76,000
Bank overdraft 2,23,600
03
Purchase and returns 48,00,000 1,00,000
3
Sales and returns 1,40,000 61,56,000
88
Advertisement 1,78,800
(9
Legal charges 20,000
S
Carriage on goods purchased 74,000

SE
Wages and salaries including PF 4,64,000

AS
Repairs and trade expenses 71,200

Opening stock 9,52,000
CL
Income tax (advance) 56,000

Interim dividend paid 70,000
A
Share capital (@ ₹ 10 each) 40,00,000

TI
6 % debentures of ₹ 100 each 20,00,000

O
1,35,67,600 1,35,67,600
AL
Additional information:
BH
1. Closing stock was valued at ₹ 10,82,000 at cost, but market value of which was ₹ 12,10,000
2. Provision for doubtful debts to be created @ 5%.
3. Depreciation on all assets was calculated for the amount of ₹ 2,86,400 for the year 2020-21.
4. Trade expenses include ₹ 10,000 for audit fees and ₹ 2,000 paid to the auditor for attending taxation mattersof the company.
5. Calls on arrear includes ₹ 4,000 due from directors.
6. Directors declared an interim dividend @ 2.5% and recommended dividend for the amount of ₹ 1,46,260.
7. Assume dividend tax rate is 17%.
8. Provide for income tax of ₹ 70,000 for the year 2020-21.
Prepare the company’s balance sheet as on 31.03.2021 and its statement of profit and loss for the year ended
31.03.2021.

Solution :
K Limited
Statement of Profit and loss for the year ended 31.03.2021

Particulars Note ₹
I: Income
(a) Revenue from operations 1 60,16,000
(b) Other income (Interest on Investment: ₹ 2,00,000 x 5 %) 2 10,000
Total 60,26,000
II: Expenses
(a) Cost of materials consumed Nil
69)
(b) Purchase of stock in trade 3 47,74,000
45
(c) Changes in inventories 4 (1,30,000)
03
(d) Employee benefit expenses 5 4,64,000
3
88
(e) Finance cost 6 1,20,000
(9
(f) Depreciation and amortization 2,86,400

S
SE
(g) Other expense 7 2,90,800

AS
Total 58,05,200
CL
Profit before tax (I – II) 2,20,800

A
Profit before tax 2,20,800

TI
Less: Provision for Tax 70,000

O
AL
Net Profit for the period 1,50,800

BH

Balance sheet as on 31.03.2021
Particulars Note Amount (₹)
I: Equity and liabilities:
(1) Shareholders funds
a. Share capital 8 39,50,000
b. Reserves and surplus 9 3,40,138
(2) Share application money pending allotment -
(3) Non current liabilities
a. Long term borrowings 10 20,00,000
(4) Current liabilities
9)
a. Short term borrowings (Bank overdraft) 2,23,600
6
45
b. Trade payables 11 6,12,000
03
c. Other current liabilities 12 1,48,750
3
d. Short term provisions
88 13 2,57,512
(9
Total 75,32,400
S
II: Assets
SE
(1) Non current assets

AS
a. Property, Plant & Equipment & Intangible Assets

CL
(i) Property, Plant & Equipment 14 50,91,600

A
TI
(ii) Intangible asset 15 3,20,000

O
b. Non current investments 16 1,97,600

AL
(2) Current assets

BH
a. Current investment 98,000

b. Inventories 10,82,000
c. Trade receivables 17 6,67,200
d. Cash and cash equivalents 18 10,000
e. Short term loans and advances 19 56,000
f. Other current assets 20 10,000
Total 75,32,400

NOTES ON ACCOUNTS :
1. Revenue from Operation (₹)

Sales 61,56,000
Less returns 1,40,000
60,16,000
2. Other income (₹)

Interest on Investment (₹ 2,00,000 x 5 %) 10,000
10,000
9)
3. Purchase of Stock (₹)
6
45
Purchase 48,00,000
03
Less returns 1,00,000
3
88 47,00,000
(9
Add: carriage on goods purchased 74,000
S
47,74,000
SE
AS
4. Changes in Inventories (₹)

CL
Closing stock 10,82,000

A
TI
Less opening stock 9,52,000

O
1,30,000
AL
BH
5. Employee Benefit Expenses ( ₹)

Wages 464,000
6. Finance Cost (₹)

Interest on debentures 1,20,000

7. Other Expenses (₹)
Advertisement 1,78,800
Legal charges 20,000
Repairs (71,200 -10,000 - 2,000) 59,200
Payment to auditor (10,000 + 2,000) 12,000
Provision for bad debts (5% on 4,16,000) 20,800
8. Share Capital (₹)

Issued subscribed and paid up capital
400000 eq shares of 10 each 40,00,000
9)
Less calls in arrear of directors 4,000
6
45
Less calls in arrears for others 46,000
03
39,50,000
3
88
(9
9. Reserves and Surplus ( ₹) ( ₹) ( ₹)
S

SE
Profit & Loss A/c 1,76,000

AS
Add: Profit for the year 1,50,800

CL
3,26,800
A
TI
Less: Appropriation
O
Interim dividend 98,750

AL
Proposed dividend 1,46,260

BH
CDT 41,652 2,86,662 40,138 3,40,138
10. Long term borrowings: ( ₹)

6 % Debentures 2,00,000

11. Trade payables ( ₹)
12. Other current liabilities (₹) ( ₹)

Outstanding interim dividend 28,750
Outstanding int on debentures 1,20,000 1,48,750
13. Short term provisions (₹) (₹)

Proposed dividend 1,46,260
Corporate dividend tax 41,652
9)
Provision for tax 70,000 2,57,912
6
45
03
14. Property, Plant & Equipment (₹) (₹)
3
Tangible
88
(9
S
Furniture 2,66,000
SE
53,78,000
AS
Less: Accumulated dep. 2,86,400 50,91,600

CL
A
TI
15. Intangible assets

O
Goodwill 3,20,000
AL
BH
16. Non current investment (₹)

5% tax free govt loan 1,97,600

17. Trade receivables (₹) (₹)
Trade debtors 4,16,000
Less: Provisions for bad debt 20,800
3,95,200
Bills receivable 2,72,000 6,67,200
18. Cash and cash equivalent (₹)

Cash in hand 10,000
19. Short term loans and advances (₹)
9)
Advance tax 56,000
6
45
03
20. Other current assets (₹)
Accrued interest
3 10,000
88
(9
S
SE
Note :
AS
Dividend is paid on paid up capital. Here paid up capital is ₹ 39,50,000

CL
A
Interim dividend on paid up capital 2.5% on ₹ 39,50,000 = 98,750

TI
O
Final dividend 1,46,260

AL
BH
2,45,010
CDT @ 17% on ₹ 2,45,010 = ₹ 41,652

2. Final Account [B.com General 3rd year 2021]*****
The Trial Balance of P.Ltd. as on 31.03.2021 is as below:
Debit ₹ Credt ₹
Stock as on 01.04.2020 1,50,000 Share Capital (Equity shares 2,00,000

of ₹ 10 each)
Purchases 5,00,000 General Reserve 42,000
Wages & Salaries 50,000 6% Debenture 50,000

Furniture 20,000 Sales 7,00,000
Rent & Taxes 15,000 Discount 3,000
9)
Administrative Expenses 25,000 Profit & Loss Balance 30,000
6
45
Plant & Machinery 1,50,000 Creditors 50,000
03
Debtors 70,000 Bills Payable 20,000
Cash 15,000
3
88
Bank 30,000
(9
S
Interest on debenture 5,000

SE
Long-term Investment 65,000

AS
10,95,000 10,95,000
CL
Additional information:
A
TI
(a) The authorised capital of the company is ₹ 5,00,000

O
(b) Stock as on 31.03.2021 is ₹ 1,96,000

AL
(c) Depreciate Plant & Machinery and Furniture at 10%

BH
(d) 10% of net profit is transferred to Reserve.
From the above information, prepare Statement of Profit and Loss for the year ended 31.03.2021
and a Balance Sheet as on that date.

3. Final Account [B.com 5th Semester Honours 2020]*****
Following is the Trial Balance of Zoom Ltd., a trading concern, as at 31.02.2021:
Debit Balance ₹ Credit Balance ₹
Stock on 01.04.2020 1,86,000 Sales 11,90,000

Purchases 7,20,000 Return outward 10,000
Return Inward 12,000 10% Bank Loan 60,000
Wages 1,10,000 Sundry Creditors 50,000
Carriage Inward 5,000 Bills Payable 12,000
Sundry manufacturing expenses 18,000 Profit & Loss Balance (Cr.) 26,000
Interest on Bank loan 5,000 (01.04.2020)
Office salaries 18,000 General Reserve 12,000
9)
Auditor’s fees 9,000 Securities Premium 24,000
6
45
Directors’ remuneration 32,000 Share Capital 4,00,000
03
Freehold Premises 1,64,000
Plant and Machinery 1,30,000
3
Furniture and Fittings 42,000
88
Patents 20,000
(9

S
Sundry Debtors 96,000

SE
Bills Receivable 29,000

AS
Cash and Bank 85,000

CL
Advance Tax for 2020-21 83,000

17,84,000 17,84,000
A
TI
O
You are required to prepare the Statement of Profit & Loss for the year ended 31.03.2021 and the Balance
AL
Sheet as at that date after taking into account the following :

(a) Stock on 31.03.2021 was valued at ₹ 1,25,000
BH
(b) Bank loan was taken on 01.04.2020.

(c) Depreciation is to be provided on Plant and Machinery @ 20 % and on Furniture and Fittings
@10%.
(d) 1/4th of Patents is to be amortised.
(e) Provision for tax is to be maintained @ 30%
(f) 10% of profit for the year is to be transferred to General Reserve.
(g) Ignore tax on dividend.

4. Final Account [B.com Honours 2017 type]*****
The following is the trial Balance of Sigma Ltd. as at 31st March,2021:
Dr. Cr.
₹ ₹
Stock on 1st April, 2020 80,000
Purchase and Sales 2,50,000 4,00,000
Purchase return 5,000
Carriage-in-ward 1,050
Wages 25,000
Salaries 10,000
Discount Received 4,000
Rent 5,000
9)
Sundry expenses 8,250
6
Balance of Profit and Loss (1-4-2020) 25,000
45
Share capital (Subscribed and paid up) ₹ 10 each 1,00,000
03
Interim Dividend 8,000
3
Debtors and Creditors 88 26,200 15,500
(9
S
Patent 4,000
SE
Bills Receivable and Bill payable 3,000 4,000

AS
5,63,500 5,63,500
CL
Prepare Statement of Profit & Loss for the year ended 31st March, 2021 and a Balance Sheet as on that date
as per Schedule II of the Companies Act, 2013, taking into consideration the following adjustments:
A
TI
a) Stock on 31st March, 2021 was valued at ₹ 98,000

O
b) Depreciate: Plant & Machinery @ 15%, Furniture & Fittings @ 10%

AL
c) On 31st March, 2021 outstanding rent amounted to ₹ 800 while outstanding salaries totaled ₹
BH
1,200
d) Make a provision for doubtful debts @ 5%
e) Provision for tax is to be made @ 30%.
f) The directors proposed a dividend @ 10% for the year ended 31st March, 2021 excluding interim
dividend and decided to transfer ₹ 10,000 to General Reserve.
g) Patents have a life of 4 year.
h) Ignore tax on dividend.
You are also required to prepare rated to account in relation to Reserve and Surplus.

5. Final Account [B.com Honours 2015] *****
Gloria Ltd. was registered with an authorised capital of ₹ 10, 00,000 divided into equity shares of ₹ 10 each, of
which 40,000 shares had been issued and fully paid.
The following is the trial balance extracted on 31st March, 2021:
Debit Credit
₹ ₹
Stock on 1st April, 2020 1, 86,420 -
Purchases and sales 7, 18,210 11, 69,900
Returns 12,680 9,850
Manufacturing wages 1, 09,740 -
Sundry manufacturing expenses 19,240 -
Carriage inwards 4,910 -
9)
18% Bank Loan (Secured) - 50,000
6
Interest on bank loan 4,500 -
45
Office salaries and expenses 17,870 -
03
Auditor’s fees 8,600 -
Director’s Remuneration 32,250
3 -
88
Freehold premises 1, 64,210 -
(9
Plant & Machinery 1, 28,400 -

S
SE
Furniture 5,000 -
Patents 20,000 -
AS
Debtors & Creditors 1, 05,400 62,220

CL
Cash in hand 19,530 -

A
Cash in bank 89,360 -

TI
Advance tax 84,290 -

O
P & L A/c on 1 April, 2020

st
- 38,640
AL
Share capital - 4, 00,000

BH
17, 30,610 17, 30,610

You are required to prepare the Statement of Profit and loss for the year ended 31.03.2021 and a Balance Sheet
as on that date as per revised schedule VI after taking into consideration the following adjustments :-
(a) On 31st March, 2021, outstanding manufacturing wages and outstanding office salaries stood at ₹ 1,890
and ₹ 1,200 respectively. On the same date stock was valued at ₹ 1, 24,840.
(b) Provide for interest on bank loan for 6 months.
(c) Depreciation is to be provided on plant and machinery @ 15% p.a. and on office furniture @ 10% p.a.
(d) Make a provision for taxation @ 33%.
(e) The directors recommended a dividend @ 15% for the current year after transfer of 5% of net profit to
General Reserve.
(f) Dividend Tax is 15 %.
6. Company Final Account [Compiled by Ravi Bhalotia] ****
The following is the trial balance of Bee Ltd. as on 31st March, 2021:
Debit ₹ Credit ₹
Stock as on 1.4.20 75,000 Purchases return 10,000
Purchases 2,45,000 Sales 3,40,000
Wages 30,000 Discount 3,000
Carriage 950 Profit and loss account 15,000
Furniture 17,000 Share capital 1,00,000
Salaries 7,500 Creditors 17,500
Rent 4,000 General reserve 15,500
Sundry trade expenses 7,050 Bills payable 7,000
Dividend paid 9,000
9)
Debtors 27,500
6
45
Plant and machinery 29,000
03
Cash at bank 46,200
3
Patents 4,800 88
Bills receivable 5,000
(9
5,08,000 5,08,000
S
SE
Prepare the profit and loss account for the year ended 31st March, 2021 and a balance sheet as on that date
after considering the following adjustments:
AS
(a) Stock as on 31st March, 2021 ₹ 88,000.

CL
(b) Provide for income tax at 50%.

A
(c) Depreciate plant and machinery at 15%. Furniture at 10%, patents at 5%.
TI
(d) On 31st March, 2005 outstanding rent amounted to ₹ 800 and salaries ₹ 900.
O
AL
(e) The board recommends payment of a dividend @ 15% per annum. Transfer the minimum required
BH
amount to general reserve.

(f) Provide ₹ 510 for doubtful debts.
(g) Provide for managerial remuneration at 10% on profit before tax.
Ignore corporate dividend tax.
[Net profit ₹ 28,324. Balance sheet total 2,10,700. Balance of Profit and Loss be carried ₹ 26,908]

Internal Reconstruction
[15 Marks]
Journal Entry:
a. ………Equity Shares of ₹ …………. each reduced to Equity Shares of ₹ ……. each
Equity Share Capital A/c (old)---------------Dr.
To Equity Share Capital A/c (New)
To Capital Reduction A/c
(Being ……….Equity shares of …………each reduced .to…………….each and balance transferred
to Capital Reduction A/c as per special resolution no. ……..dated……….)
6 9)
b. ……….Pref. Share Capital of ₹ ………….each reduced to Pref. Share Capital of …………each
45
Pref. Share Capital A/c (old) ---------------Dr.
03
To Pref. Share Capital A/c (New)
3
88
(9
(Being ……….Preference shares of …………each reduced to…………….each and balance
S
transferred to Capital Reduction A/c as per special resolution no. ……..dated……….)

SE
AS
c. ……….Debenture of ₹ ………….each reduced to Debenture of …………each

CL
Debenture (old) ---------------Dr.

A
TI
To Debenture (New)
O

AL
(Being ……….Debneture of …………each reduced to…………….each and balance transferred to

BH
Capital Reduction A/c as per scheme of reconstruction)
d. Arrear Preference Dividend or any unrecorded liability cancelled (or waived off or foregone)
(Not given in B/Sheet or it is given in Contingent Liability)
No Enty
Note:
No Entry to be passed for cancellation off arrear preference dividend.

e. Equity Share are to be issued for arrear preference dividend
(i) Capital Reduction A/c ---------------Dr.
To Preference share Dividend payable A/c
(Being arrear of Preference share dividend payable for…………years)
(ii) Preference share Dividend payable ---------------Dr.
(Being ……….Equity Shares of ……. each issued for arrears of Preference Share dividend)
f. Creditors agreed to forego part of their claim

Creditors A/c -------------------Dr.
6 9)
45
(Being creditors reduced their ……….claim as per as per scheme of reconstruction)
03
3
88
g. Creditors agreed to forego part of their claim and balance were paid off immediately
(9
Creditors A/c -------------------Dr.

S
To Bank (Amount Paid)

SE
AS

CL
(Being creditors reduced their ……….claim and balance were paid off as per as per scheme of
reconstruction)
A
TI
O
h. Debentureholders agreed to forego Accrued Interest

AL
BH
Accrued Debenture Interest A/c -------------------Dr.

(Being Debentureholders waived off their Accrued Interest as per as per scheme of reconstruction)
i. Accrued Debenture Interest paid in Cash:

Accrued Debenture Interest A/c -------------------Dr.
To Bank
(Being Accrued Debenture Interest paid off)

j. Reserve to be utilised for Capital Reduction
Reserve A/c -------------------Dr.
(Being Reserve utilised for capital reduction)
k. Securities Premium is to be eliminated

Securities Premium A/c -------------------Dr.
(Being securities premium utilised for capital reduction)
9)
l. Provision for Bad debts raised:
6
Capital Reduction A/c --------------------Dr.
45
To Provision for Bad debts A/c
303
(Being securities premium utilised for capital reduction)88
(9
m. P/L (Deficit Balance), Preliminary Expenses, Deferred Expenses, Goodwill are always to be
S
SE
written off even if no information given

AS
Capital Reduction A/c --------------------Dr.

CL
To Profit & Loss A/c

A
To Preliminary Expenses A/c

TI
To Deferred Expenses A/c

O
AL
To Goodwill A/c
BH
(Being Profit & Loss A/c, Preliminary Expenses A/c, Deferred Expenses A/c and Goodwill A/c
written off as per scheme of reconstruction)
n. Assets reduced (which was overvalued earlier)

Capital Reduction A/c -----------------Dr.
To Assets A/c
(Being Assets written off as per scheme of reconstruction)

o. Assets increased (which is undervalued earlier) Or Unrecorded assets recorded
Assets A/c -------------------Dr.
(Being value of Assets increased and unreceoded Assets recorded)
p. Investment sold at Profit
Bank A/c -----------------------Dr.
To Investment A/c
(Being Investment Sold)
q. Investment sold at Loss
9)
Bank A/c -----------------------Dr.
6
Capital Reduction A/c………Dr.
45
03
To Investment A/c
3
(Being Investment Sold) 88
r. Expenses on Reconstruction:
(9
Capital Reduction A/c -----------------Dr.

S
SE
To Bank A/c
AS
(Being expenses on reconstruction paid)

CL
s. Fresh Issue of Equity Shares/Preference shares to public at par/premium/discount

A
Bank A/c -------------------Dr,

TI
Discount on Issue A/c ----------------Dr.

O
To Equity Share Capital/Pref. Share Capital

AL

BH
(Being…………Equity/Preference shares of ₹ …… were issued as board’s resolution……..dated…..)
t. Loan taken ₹ ………to pay off Bank overdraft ₹ …… & balance to be used for working capital
(a) Bank A/c -------------------Dr.
To Loan A/c
(Being Bank Loan Taken)
(ii) Bank overdraft A/c ---------------Dr.
To Bank A/c
(Being Bank overdraft paid off)

u. Unrecorded payment to creditors:
Creditors A/c ---------------Dr.
To Bank A/c
(Being unrecorded payment to creditors recorded)
v. Call Money Due & Receiverd on Equity Shares:

(i) Equity Share Call A/c ………..Dr.
(Being Equity share call money due on ………shares @ ₹ …….each as per boards’ resolution no.
……… dated……….)
(ii) Bank A/c -------------------Dr.
To Equity Share Call A/c
69)
(Being Call Money Received)
45
03
w. Balance of Capital Reduction: transfer to Capital Reserve or Goodwill
(for this capital reduction A/c is to be prepared)
3
88
(9
Surplus = Excess Credit Balance
S
Capital Reduction A/c ----------------------Dr.

SE

AS
(Being Balance of capital reduction A/c transferred to Capital Reserve A/c)

CL
A
Deficit = Excess Debit Balance

TI
O
Goodiill A/c -----------------------Dr.

AL

BH
(Being Balance of capital reduction A/c transferred to Goodwill A/c)
x. If Balance of Capital reduction A/c to be utilised to write off Assets:

Capital Reduction A/c ----------------------Dr.
To Assets A/c
(Being Balance of capital reduction A/c utilised to write off Assets)

Surrender of Shares
(a) Each Equity Share shall be sub-divided into…….fully paid Equity Shares of ₹ ……each.
Equity Share Capital A/c ……………………………… Dr.
To Equity Share Capital A/c (New)
(Being ……….Eq. Sh. of ₹ ………each fully paid subdivided into …………Eq. Sh. of ₹ ……..
each fully paid up as per Scheme of Reconstruction)
(b) After sub-division each shareholder will surrender ….% of the holding for the purpose of
re-issue to Debentureholders & Creditors, so far as required and otherwise for cancellation.
Equity Share Capital A/c (New) ………………………………….Dr.
9)
To Shares Surrendered A/c
6
45
(Being ……………% of Equity Shares were surrendered for conversion or cancellation as per as
03
per Scheme of Reconstruction)
3
88
(c) The Debenture holders' total claims shall be reduced to ₹……….. This will be satisfied by
(9
…………Preference shares of ₹ ………… each in full satisfaction of their claims.

S
SE
Debenture A/c……………………………………………. Dr.

AS
Accrued Debenture Interest ………………………………Dr.

CL

(Being the entire balance of Debenture A/c transferred to Capital Reduction A/c as per scheme of
A
TI
Reconstruction)
O
AL
(d) Out of the surrendered shares, ……….Equity shares of ₹ …………..each shall be converted
BH
to Preference shares of ₹ ………….. each fully paid for debentureholders:

Shares Surrendered A/c………………………………………… Dr.
To Preference Share Capital A/c
(Being ………..Preference shares of ₹ ………each fully paid issued to debentureholders out of
Shares surrendered in pursuance of Scheme of Reconstruction)

(e) Debenture-holders will reduce their total claims by ₹………….and in consideration, the
debenture-holders will get the entire preference share capital converted shares surrendered.
Accrued Debenture Interest ………………………………Dr.
Debenture A/c (Balancing figure)………………………...Dr.
(Being the Debenture holders claim reduced by ₹ ……….. as per scheme of Reconstruction)
(f) The claims of Creditors shall be reduced by ……… of the amount and the balance shall be
satisfied by allotting them Equity Shares of ₹ 10 each from the Shares surrendered.
Creditors A/c………………………………………… Dr.
9)
(Being the entire balance of Creditors A/c transferred to Capital Reduction A/c as per scheme of
6
Reconstruction)
45
03
Shares Surrendered A/c ………………………………………… Dr.
3
88
To Equity Share Capital (New) A/c
(9
(Being ……… Equity Shares of ₹ ….each were Issued to Sundry Creditors out of surrendered
S
shares of their claim as per as per scheme of Reconstruction)

SE
AS
(g) Creditors' claims reduced by ₹ ………and in consideration they will receive equity shares
CL
Creditors A/c………………………………………… Dr.

A

TI
(Being the creditors’ claim reduced by ₹ ……….. as per scheme of Reconstruction)

O
AL

BH
To Equity Share Capital (New) A/c
(h) Shares surrendered and not re-issued shall be cancelled.

(Being the balance of Shares Surrendered A/c transferred to Capital Reduction A/c as per
Reconstruction Scheme)

Practical Questions
1. Internal Reconstruction
The Balance Sheet of Vaibhav Ltd. as on 31st March 2021 is as follows:
Equity Shares of ₹ 100 each 2,00,00,000 Fixed Assets 2,50,00,000
Investments
6%, Cumulative Preference
1,00,00,000 (Market Value 20,00,000
Shares of ₹ 100 each
₹ 19,00,000)
5% Debentures of ₹ 100 each 80,00,000 Current Assets 2,00,00,000
Sundry Creditors 1,00,00,000 P & L A/c 12,00,000
Provision for taxation 2,00,000
9)
TOTAL 4,82,00,000 TOTAL 4,82,00,000
6
45
03
The following scheme of Internal Reconstruction is sanctioned:
3
(i) All the existing equity shares are reduced to ₹ 40 each.
88
(ii) All preference shares are reduced to ₹ 60 each.
(9
(iii) The rate of Interest on Debentures increased to 6%. The Debenture holders surrender
S
their existing debentures of ₹ 100 each and exchange the same for fresh debentures of
SE
₹ 70 each for every debenture held by them.

AS
(iv) Fixed assets are to be written down by 20%.

CL
(v) Current assets are to be revalued at ₹ 90,00,000.

(vi) Investments are to be brought to their market value.
A
TI
(vii) One of the creditors of the company to whom the company owes ₹
O
40,00,000 decides to forgo 40% of his claim. The creditor is allotted with 60000 equity
AL
shares of ₹ 40 each in full and final settlement of his claim.

BH
(viii) The taxation liability is to be settled at ₹ 3,00,000.

(ix) It is decided to write off the debit balance of Profit & Loss A/c.
Pass journal entries and show the Balance Sheet of the company after giving effect to the
above.

Solution:
Journal Entries in the books of Vaibhav Ltd.
₹ ₹
(i) Equity share capital ( ₹ 100) A/c…………………..Dr. 2,00,00,000
To Equity Share Capital ( ₹ 40) A/c 80,00,000
To Capital Reduction A/c 1,20,00,000
(Being conversion of equity share capital of
₹ 100 each into ₹40 each as per
reconstruction scheme)
(ii) 6% Cumulative Preference Share 1,00,00,000
capital ( ₹ 100) A/c ………………………………………Dr.
To 6% Cumulative Preference Share 60,00,000
Capital ( ₹ 60) A/c
9)
To Capital Reduction A/c 40,00,000
6
(Being conversion of 6% cumulative preference
45
shares capital of ₹ 100 each into
03
₹ 60 each as per reconstruction scheme)
(iii) 5% Debentures ( ₹ 100) A/c…………………………Dr. 80,00,000
3
88
To 6% Debentures ( ₹ 70) A/c 56,00,000
(9
(Being 6% debentures of ₹ 70 each issued to

S
existing 5% debenture holde ₹ The balance

SE
transferred to capital reduction account as per

AS
reconstruction scheme)
CL
(iv) Sundry Creditors A/c………………………………………...Dr. 40,00,000

To Equity Share Capital ( ₹ 40) A/c 24,00,000
A

TI
O
(Being a creditor of ₹ 40,00,000 agreed to

AL
surrender his claim by 40% and was allotted

60,000 equity shares of ₹ 40 each in full
BH
settlement of his dues as per reconstruction

scheme)
(v) Provision for Taxation A/c…………………………….Dr. 2,00,000
Capital Reduction A/c …………………………………..Dr. 1,00,000
To Liability for Taxation A/c 3,00,000
(Being conversion of the provision for taxation
into liability for taxation for settlement of the
amount due)

199,00,000
(vi) Capital Reduction A/c Dr.
To P & L A/c 12,00,000
To Fixed Assets A/c 50,00,000
To Current Assets A/c 110,00,000
To Investments A/c 1,00,000
To Capital Reserve A/c (Bal. fig.) 26,00,000
(Being amount of Capital Reduction utilized in
writing off P & L A/c (Dr.) Balance, Fixed Assets,
Current Assets, Investments and the Balance
transferred to Capital Reserve)
(vii) Liability for Taxation A/c Dr. 3,00,000
To Current Assets (Bank A/c) 3,00,000
(Being the payment of tax liability)
6 9)
45
Balance Sheet of Vaibhav Ltd. (After Reconstruction) as on 31st March, 2021
03
Particulars Notes ₹
3
88
I: Equity and Liabilities
1 Shareholders' funds
(9
a Share capital 1 1,64,00,000

S
SE
b Reserves and Surplus 2 26,00,000

AS
2 Non-current liabilities
Long-term borrowings 3 56,00,000
CL
3 Current liabilities
A
Trade Payables (1,00,00,000 less 40,00,000) 60,00,000

TI
Total 3,06,00,000
O
AL
II: Assets
1 Non-current assets
BH
a Property, Plant Equipment

Tangible assets 4 200,00,000
b Investments 5 19,00,000
2 Current assets 6 87,00,000
Total 3,06,00,000

Notes to accounts
₹
1. Share Capital
Equity share capital
2,60,000 equity shares of ₹ 40 each

Preference share capital 1,04,00,000
1,00,000 6% Cumulative Preference shares of
₹ 60 each 60,00,000
Total
1,64,00,000
3. Long-term borrowings
6 9)
Secured
45
03
4. Tangible assets
Fixed Assets
3 2,50,00,000
88
Adjustment under scheme of reconstruction (50,00,000) 2,00,00,000
(9
5. Investments 20,00,000
S
SE
Adjustment under scheme of reconstruction (1,00,000) 19,00,000

6. Current assets
AS
2,00,00,000
Adjustment under scheme of reconstruction 110,00,000
CL
90,00,000
A
Taxation liability paid (3,00,000) 87,00,000

TI
Working Note:
O
Capital Reduction Account

AL
To Liability for taxation A/c 1,00,000 By Equity share capital 1,20,00,000

BH
To P & L A/c 12,00,000 By 6% Cumulative

To Fixed Assets 50,00,000 preferences
To Current assets 1,10,00,000 Share capital 40,00,000
To Investment 1,00,000 By 5% Debentures 24,00,000
To Capital Reserve (Bal. By Sundry creditors 16,00,000
fig.) 26,00,000
2,00,00,000 2,00,00,000

2. Internal Reconstruction
The Summarised Balance Sheet of Revise Limited as at 31st March, 2021 was as follows :
Authorised and subscribed Fixed Assets :
10,000 Equity shares of ₹ 100 10,00,000 Machineries 1,00,000
each fully paid
Long term borrowings: Current Assets:

12% Debentures 2,00,000 Inventory 3,20,000
Current Liabilities: Trade receivables 2,70,000
Accrued interest 24,000 Bank 30,000
Trade payables- 72,000 Profit and loss account 6,00,000
Provision for income tax 24,000
13,20,000 13,20,000
6 9)
It was decided to reconstruct the company for which necessary resolution was passed and
45
sanctions were obtained from appropriate authorities. Accordingly, it was decided that:
03
(a) Each share is sub-divided into ten fully paid up equity shares of ₹ 10 each.
(b)
3
After sub-division, each shareholder shall surrender to the company 50% of his holding,
88
for the purpose of re-issue to debenture holders and trade payables as necessary.
(9
(c) Out of shares surrendered, 10,000 shares of ₹ 10 each shall be converted into 12%
S
preference shares of ₹ 10 each, fully paid up.

SE
(d) The claims of the debenture-holders shall be reduced by 75%. In consideration of the
AS
reduction, the debenture holders shall receive preference shares of ₹ 1,00,000 which are
CL
converted out of shares surrendered.

(e) Trade payables claim shall be reduced to 50%, it is to be settled by the issue of equity
A
shares of ₹ 10 each out of shares surrendered.

TI
O
(f) Balance of profit and loss account to be written off.

AL
(g) The shares surrendered and not re-issued shall be cancelled.

BH
You are required to show the journal entries giving effect to the above and the resultant Balance
Sheet.

Solution
In the Books of Revise Limited
Journal Entries
Dr. Cr.
F (₹) (₹)
Equity Share Capital A/c (₹ 100) A/c………………Dr. 10,00,000
To Equity Share Capital A/c (₹ 10) 10,00,000
(Being 10,000 Equity Shares of ₹ 100 each fully paid
subdivided into 1,00,000 Eq. Sh. of ₹ 10 each fully
paid up as per Scheme of Reconstruction)
9)
Equity Share Capital (₹ 10) A/c …………………..Dr. 5,00,000
6
To Shares Surrendered A/c 5,00,000
45
(Being 50% of Equity Shares were surrendered for
03
conversion or cancellation as per as per Scheme of
3
88
Reconstruction)
(9
12% Debenture A/c……………….……………Dr. 1,50,000

S
Accrued Debenture Interest ……………………Dr. 18,000

SE

AS
(Being the Debenture holders claim reduced by 75 %

CL
as per scheme of Reconstruction)

A
1,00,000
TI
Shares Surrendered A/c………………………….. Dr.

O
To Preference Share Capital A/c 1,00,000

AL
(Being 10,000, 12% Preference shares of ₹ 10 each

BH
fully paid issued to debenture holders out of Shares

surrendered in pursuance of Scheme of Reconstruction)
Trade Payables A/c………………………………Dr. 72,000
To Capital Reduction A/c 72,000
(Being the entire balance of Creditors A/c transferred to
Capital Reduction A/c as per scheme of Reconstruction)

Shares Surrendered A/c ………………………… Dr. 36,000
To Equity Share Capital (₹ 10) A/c 36,000
(Being 3,600 Equity Shares of ₹ 10 each were issued to
Sundry Creditors out of surrendered shares of their
claim as per as per scheme of Reconstruction)
Shares Surrendered A/c ………………………..Dr. 3,64,000
(Being the balance of Shares Surrendered A/c
transferred to Capital Reduction A/c as per
Reconstruction Scheme)
Capital Reduction A/c ………………………..Dr. 6,00,000
9)
To Profit & Loss A/c 6,00,000
6
45
(Being Profit & Loss A/c written off as per scheme of
03
reconstruction)
Capital Reduction A/c ………………………..Dr.
3 4,000
88
(9
(Being Balance of capital reduction A/c transferred to

S
SE
Capital Reserve A/c)

AS
CL
Working Note (i):

Capital Reduction A/c
A
TI
Dr. Cr.
Particulars Amount (₹) Particulars Amount
O
(₹)
AL
To Profit & Loss A/c 6,00,000 By 12% Debenture A/c 1,50,000

BH
To Capital Reserve A/c 4,000 By Accrued Debenture Interest 18,000
By Trade Payables A/c 72,000
By Shares Surrendered A/c 3,64,000
6,04,000 6,04,000

Balance Sheet of Revise Limited (and reduced) as on........
Particulars Note No. Amount (₹)

I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 6,36,000
(b) Reserves and Surplus 2 4,000
(2) Non-Current Liabilities

(a) Long-term borrowings 3 50,000
(3) Current Liabilities

(a) Other current liabilities 4 6,000
(b) Short-term provisions 5 24,000
9)
7,20,000
6
Total
45
II. Assets
03
(1) Non-current assets
3
88
(a) Property, Plant Equipment
6 1,00,000
(9
(i) Tangible assets

S
(2) Current assets

SE
(a) Current investments

AS
3,20,000
(b) Inventories
CL
2,70,000
(c) Trade receivables
A
30,000
TI
(d) Cash and cash equivalents

7,20,000
O
Total
AL
BH

Notes to Accounts
₹
1. Share Capital
Equity Share Capital
Issued Capital : 53,600 Equity Shares of ₹ 10 each 5,36,000
Preference Share Capital
Preference Shares 1,00,000
(Of the above shares all are allotted as fully paid up pursuant
to capital reduction scheme by conversion of equity shares
without payment being received in cash)
6,36,000
2. Reserve and Surplus
9)
6
3. Long-term borrowings
45
12% Debentures
03
50,000
Other current liabilities

3
88
4. 6,000
Accrued interest
(9
5. Short-term provisions
S
24,000
SE
Provision for Income-tax

AS
6. Tangible assets
Machineries
CL
1,00,000
A
Working Note (i):

TI
O
Capital Reduction A/c

AL
Dr. Cr.
Particulars Amount (₹) Particulars Amount
BH
(₹)
To Profit & Loss A/c 6,00,000 By 12% Debenture A/c 1,50,000
To Capital Reserve A/c 4,000 By Accrued Debenture Interest 18,000
By Trade Payables A/c 72,000
By Shares Surrendered A/c 3,64,000
6,04,000 6,04,000

3. Internal Reconstruction [B.com Pass 2013]

Following is the balance sheet of X Ltd. As at 31.03.2021:
Share Capital Fixed Assets 3,70,000
60,000 shares of ₹ 10 each 6,00,000 Stock 1,20,000
Sundry Creditors 1,70,000 Debtors 1,70,000
Provision for tax 10,000 Cash 20,000
P/L Account 1,00,000
7,80,000 7,80,000
The directors have decided
• To reduce the nominal value of shares by ₹ 4 per shares.
• To write off the loss.
• To revalue the fixed assets at ₹ 2, 30,000.
Journalise the above transactions and prepare the balance sheet.
9)
[Balance of Capital Reduction ₹ Nil, Balance Sheet ₹ 5,40,000]
6
45
4. Internal Reconstruction [B.com Pass 2015]*
03
Following was the Balance Sheet of SUN PHARMA as on 31.12.2021 :
3
Liabilities ₹ Assets
88 ₹
(9
4,000 Equity shares of ₹ 100 Goodwill 60,000
each 4,00,000 Plant & Machinery 2,00,000
S
SE
2,000, 8% Pref. Shares of ₹ 100 Land & Building 2,50,000

AS
each fully paid 2,00,000 Patents 30,000

Secured Loan 40,000 Stock 40,000
CL
Bank Overdraft 60,000 Debtors 50,000

Creditors 1,00,000 Bank 20,000
A
P/L A/C 1,40,000

TI
Preliminary Expenses 10,000

O
AL
8,00,000 8,00,000
BH
The company undertook the following scheme of reconstruction:

(a) Equity shares were to be reduced to shares of ₹ 50 each fully paid up;
(b) Pref. Shares were to be converted into 10% Pref. Shares of ₹ 70 each fully paid up;
(c) Sunday creditors agreed to give up 1/5th of their claims provided they were paid off immediately;
(d) 3,000 equity shares of ₹ 50 each were to be issued for cash;
(e) Expenses of reconstruction were to be ₹ 7,500 ;
(f) The company decided –
i. To write off goodwill, debit balance of Profit and Loss A/c., Patents and Preliminary expenses;
ii. To write down Plant and Machinery by ₹ 15,000 and stock by ₹ 10,000;
iii. To create a provision for doubtful debts @ 5%.
Show journal entries giving effects to the scheme of reconstruction.

5. Internal Reconstruction [B.com Pass 2004]*
The balance sheet of P Ltd. as at 31.12.21 was as follows :
Equity and liability
Shareholders fund : ₹
Share capital (1 Lakh equity Shares @ ₹ 10 each) 10,00,000
Reserve and surplus (1,50,000)
Current Liabilities:
Short term borrowings (bank overdraft) 2,00,000
Trade payable 1,00,000
11,50,000
Assets ₹
Non-current Assets :
Fixed assets
Tangible 7,00,000
9)
Intangible (Goodwill) 2,00,000
6
Current assets :
45
03
Cash and cash equivalents 10,000
3
88 11,50,000
Notes to Accounts:
(9
(1) Reserve and surplus :

S
Security premium 50,000

SE
Profit and loss statement (deficit) (2,00,000)

AS
1,50,000
( 2) Fixed assets :
CL
Tangible
A

TI
Plant and machinery 2,00,000

O
7,00,000
AL
In view of the heavy losses the company approved the following scheme of reconstruction :
(a) The share capital be reduced to 1,00,000 equity shares of ₹ 5 each fully paid.
BH
(b) Securities premium account be eliminated.

(c) Goodwill and the debit balance in the profit and loss account be written off.
(d) Land and buildings, plant and machinery and stock-in-trade be revalued at ₹ 4,25,000, ₹ 1,65,000 and ₹
75,000 respectively ;
You are required to pass journal entries in the books of the company to give effect to the above scheme and
prepare the revised balance sheet.
[Capital Reserve A/c 15,000; B/Sheet 8,15,000]

6. Internal Reconstruction [B.com Honours 2020 5sem]*
The Balance Sheet of B. Ltd. as on 31.03.2021 is as below :
Particulars Amount
₹
I. Equity and Liabilities :
1. Shareholders’ Funds :
(a) Share Capital :
(i) Equity share capital (₹ 10 each) 5,00,000
(ii) 7% Cumulative Preference share capital (₹ 100) 1,00,000
(b) Reserves and Surplus :
(i) Balance in statement of Profit and Loss (5,00,000)
2. Non-current Liabilities :
(a) Long-term Borrowings (8% Debentures) 1,00,000
3. Current Liabilities :
9)
(a) Trade Payables (Trade Creditors) 5,00,000
6
45
Total 7,00,000
03
II. Assets :
1. Non-current Assets :
(a) Fixed Assets :
3
88
(i) Tangible Assets :
(9
Buildings 1,00,000
S
Machinery 4,00,000
SE
(ii) Intangibles (Goodwill) 40,000

AS
2. Current Assets :
(a) Inventories (Stock) 60,000
CL
(b) Trade Receivables (Sundry Debtors) 90,000

A
(c) Cash and Cash equivalents (Bank) 10,000

TI
7,00,000
O
Note : Contingent liability for Arrear Preference Dividend for 3 years.

AL
A scheme of internal reconstruction is approved by the court in the following lines :

BH
(a) Paid up value of equity share capital is to be reduced to 10%;

(b) Preference shareholders are to be issued 8%, 7 Preference shares of ₹ 10 each in exchange of each
existing preference shares.
(c) Preference shareholders are to be issued similar preference share for one-third of arrear
dividend. The balance of arrear dividend are to be cancelled.
(d) 8% Debenture holders agreed to sacrifice 20% of their claim for increase of interest to 10%.
(e) Building is valued at ₹ 1,50,000.
(f) Losses and intangible assets are to be written off.
Pass necessary journal entries (without narration) giving effect to the above scheme and prepare a revised
Balance Sheet of the company.

7. Internal Reconstruction [B.com General 2020 5sem]*
Following balance were available from the Balance Sheet of Timtim Ltd. as at 31.03.2021:
(Amount) ₹
3,000 6% Preference shares of ₹ 100 each, fully paid up 3,00,000
45,000 Equity shares of ₹ 10 each, fully paid up 4,50,000
Profit and Loss Account Debit Balance (1,50,000)
Bills Payable 50,000
Bank Overdraft 1,00,000
Land and Building 2,70,000
9)
Goodwill 42,300
6
Patent 18,000
45
Inventory 88,800
03
Debtors 1,50,900
3
88
Dividends on Preference Shares are in arrear for three years. The company passes a special resolution
(9
to reduce its capital in accordance with the following scheme and the same is duly sanctioned by the
S
SE
Court :
AS
(a) Each 6% preference share is converted to 8%, Preference shares of ₹ 75 each, fully paid. The
CL
value of equity shares is brought down to ₹ 8 per share fully paid.

(b) The arrears of dividend on preference shares are sacrificed by the preference shareholders.
A
TI
(c) Goodwill to be written off fully.

O
(d) Land & Building and Plant & Machinery are revalued at 135% and 80% of their respective book
AL
BH
values.
(e) Book debts worth ₹ 7,200 are to be treated as bad and hence to be written off.
(f) The balance of total capital reduction is to be utilised in writing down patents.
Give necessary Journal entries to give effect to the above.

8. Internal Reconstruction [Compiled]*
The share capital of Zed Ltd. consisted of the following :-
(i) 10,000, 6% Preference Shares of ₹ 100 each; and
(ii) 50,000 Equity Shares of ₹ 10 each
The shares were fully paid. By the end of 2021 it had accumulated loss to the extent of ₹ 3,50,000 besides
preliminary expenses totaling ₹ 20,000. It was also ascertained that the fixed assets which stood in the books at ₹
14,00,000 were overvalued to the extent of ₹ 4,00,000.
A scheme of capital reduction was adopted and approved by the Court in order to remove the overvaluation and
to write off the losses and preliminary expenses. Under the scheme the 6% Preference Shares were to be
converted into 7 ½ % Preference Shares of ₹ 60 each and the Equity Shares were to be converted into shares of ₹
2 each. Also the dividends on Preference Shares which were in arrear for three years were to be cancelled.
State the Journal entries to be passed on the implementation of the scheme.
[Transfer to capital Reserve ₹ 30,000]
9)
9. Internal Reconstruction [B.com Honours 2005]*
6
45
The following is the balance sheet of Titanic Ltd. as on March 31, 2021:
Equity and liability ₹
03
Equity share capital of ₹ 10 each 6,00,000
3
8% preference share capital of ₹ 100 each 88 2,00,000
(9
Deficit in statement of profit and loss (1,20,000)
6% debentures of ₹ 100 each 1,00,000
S
SE
Current Liability 40,000

9,70,000
AS
Assets
CL

A
Trade receivables 3,25,000

TI
Cash in hand 70,000

O
9,70,000
AL
During the last few years the company passed through very bad times. Company has now puts the following
BH
scheme of reconstruction after the approval of the Court,:

(a) Each existing equity share to be converted into one equity share of the nominal value of ₹ 3 per shares.
(b) 8% preference shares are to be converted into such number of 16% preference shares of ₹ 100 each as to
generate the same amount of dividend as before.
(c) Each Rs, 100 of debentures is to be exchanged for one ₹ 50 new 12% debentures and six new equity
shares of ₹ 3 each.
The reduction of capital and general reserve are to be utilized for writing of losses, 60% of inventories and
trade receivables and balance, if any, is to be used for writing down fixed assets. Show the necessary journal
entries and draw the revised balance sheet.
[Balance sheet total ₹ 3,88,000. Fixed assets written down by ₹ 2,22,000]

10. Internal Reconstruction [B.com Honours 1982 type]*
The following is the balance sheet of Alpha Ltd as on 31.3.21:
Shareholders fund :
Reserve and surplus (1,03,000)
Non-Current Liabilities
Long-term borrowings 2,00,000
17,51,500
Assets ₹
9)
Current assets :
6
45
03
Cash 24,500
17,51,500
3
Notes to Accounts:
88 ₹
(1) Share capital:
(9
Issued and subscribed are fully paid :

S
Equity shares of ₹ 10 each 10,00,000

SE
10% preference shares of ₹ 100 each 4,00,000

AS
14,00,000
CL

A
Profit and loss statement (deficit) (5,56,500)

TI
(103000)
O
(3) Long-term borrowings :

AL
11% debentures of ₹ 100 each 200,000

The company after the approval of the court puts the following scheme of reconstruction :
BH
(a) Each existing preference share is to be reduced to ₹ 35 of which ₹ 20 will be represented by new 12%
preference share of ₹ 15 by new equity shares.
(b) Each debenture is to be exchanged for ₹ 50 of new 13% debentures, one new 12% preference shares
of ₹ 20 each and four new equity shares of ₹ 2.50 each.
(c) Each existing equity share is to be converted into ₹ 2.50 each.
(d) Reserves to be written off in full.
(e) Reduction in assets to be made as follows : (i) Inventories 50% ; (ii) Trade receivables 50% ; (iii) Losses
100% ; (iv) Fixed assets – to the extent possible.
Show necessary journal entries and draw up the revised balance sheet.
[Answer: Balance Sheet total ₹8,04,500. Fixed assets to be written off by ₹ 3,07,000]

11. Internal Reconstruction [C.U B.Com 5SEM 2019 Honours]*
The following figures are available from the Balance Sheet of Jagaddhatri Ltd. as on 31.03.2021:
Liabilities ₹
70,000 Equity Shares of ₹ 10 each 7,00,000
5,000 10% Preference Shares of ₹ 100 each 5,00,000
9% Debenture 4,00,000
Accrued interest 36,000
Creditors 3,34,000
22,20,000
Assets:
Land 4,00,000
Plant 2,00,000
9)
Patent 40,000
6
Goodwill 1,20,000
45
Investment 60,000
03
Debtors 4,00,000
Stock 4,50,000
3
88
Profit & Loss Account 5,50,000
22,20,000
(9
A scheme of re-organisation as approved by the Court was to take effect on 01.04.2021 by adopting the
S
SE
following course:
(a) Preference Shares are to be written down to ₹ 75 each and Equity Shares to ₹ 1 each.
AS
(b) Preference dividend were in arrear for 4 years. 1/4th of the total arrear dividend is to be satisfied by
CL
issue of Equity Shares of ₹ 1 each and 3/4th of the claim is to be waived.

(c) Accrued interest on Debentures are to be paid in cash.
A
TI
(d) Investments are to be sold for ₹ 1,00,000.

O
(e) Provision for bad debts is to be considered ₹ 9,000.

AL
(f) Plant is valued at ₹ 1,78,000.

(g) All the intangible assets are to be written off to maximum extent.
BH
Show the Journal Entries including narration to give effect of the above transactions in the books of the
Company.

12. Internal Reconstruction [C.U., B.Com 2009, 1983]*
The following was the Balance Sheet of Sick Company Ltd. as on 31st December, 2021:—
Authorised Share Capital: Goodwill 10,000
20,000 Equity Shares of ₹ 10 each 2,00,000 Land & Building 20,500
Issued, Subscribed & paid up capital: Plant & Machinery 50,850
12,000 shares @ ₹ 10 each 1,20,000 Preliminary Expenses 1,500
Less: Calls in arrear @ ₹ 3 per share 9,000 Stock 10,275
1,11,000 Book Debts 15,000
Sundry Creditors 15,425 Cash at Bank 1,500
Provision for Tax 4,000 Profit & Loss A/c Balance as per last
Balance Sheet 22,000
Less : Profit for the year 1,200
1,30,425 1,30,425
9)
The directors have had a valuation made of the Plant and Machinery and find it overvalued by ₹ 10,000. It is
6
proposed to write down this asset to its true value and to extinguish the deficiency in the Profit and Loss A/c
45
and to write off Goodwill and Preliminary Expenses be the adoption of the following course :—
03
(a) Forfeit the shares on which the call is outstanding.
(b) Reduce the paid up capital by ₹ 3 per shares.
3
(c) Re-issue the forfeited shares at ₹ 5 per shares.
88
(d) Utilise the provision for taxes, if necessary.
(9
The shares on which calls were in arrear, were duly forfeited and re-issued on payment of ₹ 5 per shares.
S
Draft the necessary journal entries and the new Balance Sheet of the company, showing working where
SE
necessary.
AS
[Profit on re-issue of shares ₹ 15,000; Provision for Tax utilised ₹ 300; Total of B/Sheet ₹ 1,03,125]
CL
13. Internal Reconstruction [B.com 2014 Honours]****

A
The following is the summarised balance sheet of Y Ltd. as on 31st March, 2021.
TI

O
80000 equity shares of ₹ 10 each 8,00,000

AL
4000 8% preference shares of ₹ 100 each 4,00,000

BH
Balance in statement of profit and loss :

Opening ( Deficit) (4,40,000)
Less: Profit for the year 80,000 (3,60,000)
Interest due on debentures 60,000
Trade payable 40,000
12,40,000
Assets
Plant and machinery 2,00,000

Investments 1,00,000
Trade receivable 80,000
Cash 20,000
12,40,000
The preference dividend are in arrear for three years. Considering the improvement made in the working of the
company, the directors decide upon a scheme of reconstruction with reduction of capital and it is approved on
the following terms:
(a) The preference shareholders agree that their shares be reduced to fully paid shares of ₹ 90 each. They
will accept equity shares of ₹ 4 each fully paid for half of their arrear dividends and rest half will be
forgone.
(b) The equity shareholders agree that their shares be reduced to fully paid shares of ₹ 4 each and further
subscribe 40,000 equity shares of ₹ 4 fully paid for working capital purpose.
(c) The debenture holders agree to accept fully paid equity shares of ₹ 4 each for the interest due to them.
(d) Investment are to be sold for ₹ 90,000 and thus money available along with new issued be utilized to
9)
pay off bank overdraft.
6
45
Show the necessary journal entries to record the scheme of capital reduction and draw up a new balance sheet
immediately after the implementation of the scheme and writhing of plant and machinery by 10% and obsolete
03
inventory of ₹ 30,000.
3
[Balance sheet total 12,40,000. Transfer to Capital reserve ₹ 52,000. Cash balance ₹ 1,70,000 Equity
88
capital ₹ 5,56,000]
(9
14. Internal Reconstruction [B.com 2016 Honours]*

S
SE
Green Ltd. has decided to reconstruct the Balance Sheet since it had accumulated huge losses. The following
AS
is the Balance Sheet of the Company on 31.3.21 before reconstruction.

I. Equity and Liabilities: ₹
CL
1. Shareholders Fund
A
a) 60000 equity shares of ₹ 10 each fully paid up 6,00,000

TI
4,000, 12% Preference shares of ₹ 100 each fully paid up 4, 00,000

O
b) Reserves and Surplus

AL
Profit and Loss balance (1,65,000)

2. Non-Current Liabilities:
BH

3. Current Liabilities:
Trade Payables (Sundry Creditors) 45,500
12,67,250
II. Assets
1. Non- Current Assets:
(i) Fixed Assets
(a) Tangible:
Land and Buildings 5,00,000

Furniture 32,500
(b) Intangible:
Goodwill 1,50,000
(ii) Non-Current Investment Nil
2. Current Assets:
Trade Receivables (sundry Debtors) 46,000
Cash and Cash Equivalent 750
12,67,250
Note: The preference dividends are in arrear for five years.
A capital reduction scheme is submitted as follows:
(i) Equity Shares to be reduced to ₹ 5 each.
(ii) All arrears of preference dividends to be cancelled.
(iii) Each Preference Share to be reduced to ₹ 75 and then exchanged for one new 12% Preference
9)
Share of ₹ 50 each and five Equity Shares of ₹ 5 each.
6
(iv) The debits balance i.e. the negative balance of profit and loss to be written off. Plant and
45
Machinery to be written down as much as possible. Goodwill is to be written in full.
03
(v) The debentures are to be redeemed at 5% premium. Holders being given the option to subscribe
3
at par for new 12% Debentures. 88
Approval of the Court is obtained 2,00,000 new equity shares are issued at par payable in full on application.
(9
Holders of old debentures to the extent of ₹ 1,00,000 exercised their option and subscribes for new
debentures. Expenses in connection with the scheme amounted to ₹ 6,750.
S
SE
Show the journal entries (without narration) and set out the new balance sheet of the Company.
AS
15. Internal Reconstruction [C.U. B.com Honours 2000]****

CL
The following is the balance sheet of Tipu Ltd., a company which is incurring losses for the last two years:
A
Balance Sheet as on December 31, 2021

TI

O
Shareholders fund :
AL

Reserve and surplus (175000)
BH
Non-Current Liabilities:
Long term borrowings 1,00,000
11,50,000
Assets ₹
Current assets :

Cash in hand 1,60,000
11,50,000
Notes to Accounts: ₹
(1) Share capital :
Issued and subscribed are fully paid :
3000 10% preference shares of ₹ 100 each 3,00,000
9,00,000
Deficit profit and loss statement (4,25,000)
(1,75,000)
(3) Long-term borrowings :
9)
6% debentures of ₹ 100 each 1,00,000
6
45
(4) Contingent Liability :
Preference dividend are in arrear for two Years.
03
The directors decided upon a scheme of reconstruction with a reduction of capital and it is approved on the
3
following terms: 88
(a) Equity shares to be converted into same number of equity shares of such face value as to reduce the paid-
(9
up equity share capital by 30%.
(b) Preference shares to be converted into same number of preference shares of ₹ 60 each, fully paid up.
S
SE
(c) Balance of general reserve to be utilized in full.

(d) Debentures to be converted into such number of 8% debentures of ₹ 50 each as to generate the same
AS
amount of interest as before.

CL
(e) Fixed assets and stock are to be reduced by ₹ 2,76,000 and ₹ 19,000 respectively.
(f) Arrears of preference dividend to be written off in full. Profit and loss account also to be written off.
A
(g) The following are to be given effect to:

TI
(i) Unrecorded debtors ₹ 1, 67,000. (ii) Unrecorded payment to creditors ₹ 40,000. (iii) Reconstruction
O
expenses amounted to ₹ 5,750.

AL
Pass necessary journal entries to give effect to the above scheme and prepare the resultant balance sheet of
BH
the company.
[Balance Sheet ₹ 9, 76, 250. Transfer to capital reserve ₹ 16,250. Cash at bank ₹ 1,14,250.]

16. Internal Reconstruction [C.U. B.com Honours 2018]****
Following are the liabilities and assets of Weak Ltd. as on 31.03.2021:
₹
I. Equity and Liability:
1. Shareholder’s Fund:
a) Equity shares of ₹ 10 each fully paid 12,00,000
8% Preference Shares of ₹ 10 each fully paid 5,00,000
b) Reserves and Surplus:
Accumulated Loss
(8,00,000)
2. Non-current Liabilities
3. Current Liabilities
Trade Payable (Creditors) 3,00,000
Total 18,00,000
9)
II. Assets:
6
1. Non-current Assets
45
a) Fixed Assets
Tangible : (Building ₹ 6,00,000; Plant and Machinery ₹ 4,00,000)
03
10,00,000
Intangible (Goodwill) 2,00,000
3 ---
b) Non-current Investment
88
2. Current Assets:
(9
Inventory
3,00,000
S
Trade Receivables (Debtors) 2,50,000

SE
Cash and Cash Equivalents 50,000

AS
Total 18,00,000
CL
Note: Preference dividends are in arrear for two years.

Due to heavy accumulated losses, overvaluation of assets and non-disclosure of some liabilities, the company
A
prepared the following scheme of reconstruction and it was approved by the Court:
TI
a) Equity shares are to be converted into shares of ₹ 5 each, ₹ 3 paid-up. ₹ 2 to be immediately called
O
for acquiring cash.

AL
b) 8% Preference Shares are to be converted into 10% Preference Shares of ₹ 5 each, fully paid. 50% of
BH
arrear dividend is to be foregone by them and balance to be satisfied by issue of sufficient equity
shares of ₹ 5 each, fully paid.
c) 10% debenture are to be converted into sufficient 12% Debenture to earn same amount of interest as
before, the debenture holders agreed to forgo the accrued interest of 2020-21 which had not been
recorded in the books.
d) An unrecorded claim of ₹ 90,000 is to be paid off immediately.
e) Reconstruction expenses are to be written off. Actual expense amounted to ₹ 10,000.
f) Accumulated losses and Goodwill are to be written off and the balance of sum made available by the
scheme is to be used to write down the Plant and Machinery.
You are required to pass necessary journal entries (without narration) to give effect to the above
scheme and also to prepare the Balance Sheet of the company after reconstruction.

17. Internal Reconstruction [B.com Honours 1994]*
The balance sheet of Bad Luck Co. Ltd. as at 31.12.21 is as under:
Equity and liabilities ₹
Share capital (equity shares of ₹ 10 each fully paid) 10,00,000
Reserve and surplus (deficit in profit and loss statement) (5,00,000)
Long- term borrowings (10% debentures) 4,00,000
Interest due on debentures 40,000
1100000
Assets
Goodwill 2,00,000
Other assets 9,00,000
11,00,000
9)
For the purpose of reconstruction of the company, necessary resolutions are passed on the following lines:
6
(a) The equity shares are to be sub-divided into shares of ₹ 1 each and each shareholder shall surrender 60%
45
of his holding.
03
(b) Out of the surrendered shares, 60,000 shares will be converted to 8% preference shares of ₹ 10 each.
(c) Debenture-holders will reduce their total claims by ₹ 1,40,000 and in consideration, the debenture-holders
3
88
are to get the entire preference share capital converted shares surrendered.
(d) Creditors' claims are to be reduced by ₹ 1,00,000 and in consideration they are to receive equity shares of
(9
₹ 1 each amounting to ₹ 40,000 from the shares surrendered.

S
(e) Goodwill and profit and loss account (Dr.) are to be written off completely.
SE
(f) The remaining surrendered shares shall be cancelled.

AS
You are required to give the journal entries and the resultant balance sheet of the company.
[Balance sheet total ₹ 9,00,000. Transfer to capital reserve ₹ 40,000]
CL
A
18. Internal Reconstruction [B.com Honours 1998]****

TI
Passing through bad times and incurring heavy losses during the past few years Info Industries Ltd. decided to
O
undertake certain financial measures to revitalise the company. Their assets and liabilities as on 31st
AL
December, 2021 are given below:

BH
₹
10,000 18% debenture of ₹ 100 each 10,00,000
Outstanding interest on debentures 3,60,000
Plant 10,50,000
Furniture 9,10,000
Stock 8,00,000
Debtors 6,00,000
Cash at bank 1,80,000

The following scheme of reorganisation was proposed by the directors of the company
(a) The equity shares are to be sub-divided into shares of ₹ 5 each and 60 per cent of shares are to be
surrendered.
(b) The total claims of the debenture-holders to be reduced by ₹ 8,60,000 and balance will be paid by
allotment of 1,00,000 equity shares of ₹ 5 each (out of the surrendered shares).
(c) The claims of the creditors Will be reduced by ₹ 2,50,000 and 1/5th of balance was to be satisfied by issue
of equity shares out of surrendered shares.
(d) The value of land and building, plant and furniture are to be reduced to 50% of their value and value of
stock to be reduced by 40 %.
(e) It is expected to realise 60 % of the amount due from debtors and so directors of the company propose to
write-off the balance amount.
(f) Shares surrendered but not re-issued are to be cancelled.
You are asked to show necessary journal entries in the books of the company and a balance sheet.
[Balance sheet total ₹ 27,50,000. Debit balance of Profit and Loss A/c to be written : ₹ 18,20,000]
9)
19. Internal Reconstruction [C.U., B.Com 2007]*
6
45
The position (besides accumulated loss) of Sunset Ltd. as on 31.03.21 was as follows:
03
₹
50,000, Equity Shares of ₹ 100 each 50,00,000
3
25,000, 9% Preference Shares of ₹ 100 each
88 25,00,000
Preference Dividend in Arrears (not shown in Balance Sheet) 4,50,000
(9
Creditors 12,50,000
S
Fixed Assets 50,00,000

SE
Current Assets 16,25,000

AS
Following Scheme of reconstruction was adopted :

(a) Fixed Assets and Current Assets were revalued at ₹ 30,00,000 and ₹ 12,50,000 respectively.
CL
(b) The Equity Shares were subdivided into share of ₹ 5 each and 80% of these shares were surrendered.
A
(c) The preference shareholders' claim was reduced by 50% and in consideration they were allotted equity
TI
shares out of shares surrendered account amounting to ₹ 6,25,000.

O
(d) The creditors agreed to reduce their claim by ₹ 7,50,000, one third of which was satisfied by the issue of
AL
equity shares out of those shares surrendered.

(e) The remaining surrendered shares were cancelled.
BH
Pass Journal Entries and prepare the Balance Sheet just after re-construction.
[Ans. Profit on Capital reduction ₹ 6,25,000, Balance Sheet total ₹ 42,50,000]

20. Internal Reconstruction [B.com Honours 2013, 2015] [Shares
surrendered]*
The ledger balances of Sick Ltd. As on 31.03.21 include: (in ₹ )
Fixed Assets 8,00,000
Investments 10,000
Inventories (market value ₹ 3, 40,000) 3,90,000
Debtors 4,60,000
Preliminary Exp. 20,000
Bank Overdraft 50,000
st
10% 1 Debentures 2,00,000
nd
12% 2 Debentures 5,00,000
Creditors (including Y for ₹ 5, 50,000) 11,50,000
st
Outstanding debenture Interest (1 Debentures ₹ 20,000 80,000
nd
2 Debentures ₹ 60,000)
9)
Equity Share (Face Value ₹ 100, 60% paid up) 6,00,000
6
45
Due to heavy accumulated losses and overvaluation of fixed assets, following scheme of reconstruction is
agreed upon –
03
(a) To make call against the existing equity shares to make them fully paid up and then to subdivide them to
shares of ₹ 20 each
3
88
(b) After subdivision the equity shareholders to surrender 80% of their holding for redistribution or
(9
otherwise for cancellation.
S
(c) To settle the claim (including interest) of the holders of the 1st Debentures by issuing 1,000, 13.5%
SE
Debentures of ₹ 100 each. They are also to be issued 3,000 equity shares out of surrendered shares.
AS
(d) To issue 15,000 equity shares out of surrendered shares to the holders of the 2nd Debentures in full
settlement of their claim (including interest).
CL
(e) To issue 10,000 equity shares out of surrendered shares to Y in full settlement of his account;
(f) To write of all accumulated losses, fictitious assets and writing down the fixed assets to the extent
A
TI
possible.
O
Pass necessary Journal Entries (without narration) to give effect to the above transactions and prepare the
AL
Balance Sheet of the company immediately after the reconstruction.

[Ans. P/L ₹ 9,00,000; Written off from FA ₹ 5,00,000; Balance Sheet total ₹ 14,60,000]
BH

21. Internal Reconstruction [B.com Honours 2012] [Shares
surrendered]**
The balance sheet of a company as on 31st March 2021 was as under
8% preference shares of ₹ 100 each 2,00,000
Security premium 90,000
Deficit in profit and loss statement (2,00,000)
Unsecured loans (from directors) 50,000
Outstanding expenses (Including directors remuneration ₹ 20,000) 70,000
8,10,000
Assets
Goodwill 50,000
9)
Plant 3,00,000
6
Loose tools 10,000
45
03
3
Cash 88 10,000
Bank 35,000
(9
Preliminary 5,000
8,10,000
S
The following scheme of reconstruction has been agreed upon and approved by the court:
SE
(a) Equity shares to be converted into shares of ₹ 2 each and equity shareholders agreed to surrender 90 %
AS
of the holdings.
CL
(b) Preferance share holders agreed to forego arrears of preferance dividend for three years in lieu thereof
the rate of dividend to be increased to 9 %.
A
(c) Directors agreed to forego their loans and remuneration.

TI
1
(d) Creditors (trade payables) agreed to reduce their claims by 𝑡𝑡ℎ in consideration of their getting new
O
5
shares worth ₹ 35,000.
AL
(e) Assets are revalued as under

BH
Plant ₹ 2,60,000 Trade receivables ₹ 2,35,000

Loose Tools ₹ 2,000 Inventories ₹ 1,30,000
(f) Reconstruction expenses amount to ₹ 10,000.
(g) To prove working capital, existing shareholders subscribe for 50,000 equity shares of ₹ 2 each.
Pass necessary journal entries and prepare the reconstructed balance sheet.
[Answer: Balance sheet total ₹ 7,62,000. Transfer to capital reserve ₹ 17,000. Cash at bank ₹ 1,25,000]

22. Internal Reconstruction [3rd year Hons 2021] [Shares
surrendered] *******
The Balance Sheet of Mass Ltd. as on 31.03.2021 is as under:
Amount (₹)
I. Equity and Liability
1. Shareholders’ Funds:
(a) Share Capital – 40000 Equity Shares of ₹ 100 each. 40,00,000
(b) Reserves and Surplus:
Statement of Profit & Loss (5,00,000)
2. Non-current Liabilities:
Interest Due on Debentures 2,40,000
Term Loan 6,00,000
9)
50,40,000
6
II. Assets
45
1. Non-current Assets:
03
(a) Property, Plant and Equipment
(i) Tangible Assets 33,00,000
(ii) Intangible Assets (Goodwill)
3 6,00,000
88
2. Current Assets:
(9
(a) Inventories 5,00,000
(b) Trade Receivables 6,00,000
S
(c) Cash and Cash Equivalents 40,000

SE
50,40,000
AS
The following scheme of reconstruction has been passed and approved by the Court:
CL
(i) The Equity Shares are to be subdivided into shares of ₹ 10 each and each shareholder shall
A
surrender 80% of his/her holdings.

TI
O
(ii) The company issues 100000 Equity Shares of ₹ 10 each at a premium of ₹ 5 each.
AL
(iii) 50% of 10% Debentures are redeemed.

BH
(iv) The claims of Trade Payables are to be reduced by 40%.

(a) Outstanding Interest on Debenture is paid off.
(b) The surrendered shares are cancelled.
(v) The Capital Reduction A/c should be utilised to write off Tangible Assets as maximum as
possible after writing off intangible assets and accumulated losses.
(vi) Expenses of reconstruction are ₹ 50,000.
You are required to prepare journal entries and a Balance Sheet after effecting the scheme in the
books of Mass Ltd. (Narration not required).

Amalgamation & Absorption of

companies [15 Marks]
For Old Company we have to prepare:
a. Journal
b. Ledger
For New Company we have to prepare:

a. Journal
b. Balance Sheet
Working Note:
i. Amalgamation in nature of purchase
ii. Amalgamation in nature of merger
9)
AMALGAMATION IN NATURE OF PURCHASE
6
45
Working Notes:
a. Purchase Consideration: - Payment to shareholders (Mode of payment in shares, cash etc.)
03
Equity Shareholders = _________
3
Pref. Shareholders = _________ 88
(9
b. Net Assets Taken Over (NATO): -
Sundry Assets taken over [Excl. G/Will, Misc. Exp., P/L (Dr. Bal.)] _________
S
SE
Less: Sundry Liabilities (Excl. Capital & Reserves) _________

AS
c. G/Will OR Capital Reserve

CL
If Purchase Consideration > NATO then G/Will = Purchase Consideration – NATO

If Purchase Consideration < NATO then Capital Reserve = NATO – Purchase Consideration
A
If Purchase Consideration is not given then Purchase Consideration = NATO (including G/Will)
TI
O
In the books of New Company:

AL
Journal Entry
BH
a. Business Purchase A/c --------------- Dr.

To Liquidator of Old Co. A/c
(Being Purchase consideration due)
b. Sundry Assets A/c ----------------------------Dr.

Goodwill A/c ------------------------------Dr.
To Sundry Liabilities A/c
To Business Purchase A/c
(Being Sundry Assets & Liabilities of old companay were taken over)
(Only Assets & Liabilities taken over) (At Taken over Value)

c. Liquidator of Old Co. A/c -----------Dr.
To Pref. Share Capital A/c
To Security Premium A/c
To Bank/Cash A/c
(Being payment to liquidators)
d. Debenture holders of Old Co. A/c -----------------Dr.

Discount on issue of debenture A/c ---------------Dr.
To Debenture A/c
(Being Payment to debenture holders)
e. Creditors A/c -------------------------Dr

To Debtors A/c
9)
(Being inter company debt set off)
6
45
f. Bills Payable A/c -------------------Dr.
03
To Bills Receivable A/c
3
(Being inter company acceptance set off) (Note: Discounted bill will not be set off)
88
(9
g. Goodwill A/c ---------------------Dr.
To Bank A/c
S
SE
(Being liquidation expenses of old company paid by new company)

AS
h. Preliminary Expenses A/c ---------------Dr.

CL
To Bank A/c
(Formation Expenses paid by new company)
A
TI
i. Bank A/c ------------------------------------------Dr.

O
Discount on issue of share/debenture A/c ------------Dr.

AL
To Equity Share Capital/Preference Share Capital/Debenture A/c

BH
To Securities Premium (if issued at Premium)

(Being………Shares/Debentures A/c of ₹ ……each issued as per boards’ resolution no. ….. dated…)
j. Amalgamation Adjustment A/c…………………Dr.

To Statutory Reserve A/c
(Being Statutory Reserve A/c of old company to be maintained by New Company)

In the books of Old Company:
Journal Entry
a. Sundry Assets to be closed [Except, Preliminary expenses, Cash & Bank (if not taken over)]
Realisation A/c -----------------Dr.
To Sundry Assets A/c (At Book Value)
(Being Sundry Assets transferred to Realisation A/c)
b. Sundry Liabilities to be closed [Except Share Capital & Reserves]

Sundry Liabilities A/c --------Dr.
Provisions A/c ----------------Dr.
Debenture A/c ---------------Dr.
To Realisation A/c
(Being Sundry liabilities transferred to Realisation A/c)
c. Assets Sold (if not taken over) (either recorded or unrecorded)
9)
Bank A/c ---------------------Dr.
6
To Realisation A/c
45
(Being Sundry Assets Sold)
03
3
d. Liabilities paid off (if not taken over) 88
Realisation A/c -------------Dr.
(9
To Bank A/c
(Being Sundry liabilities paid off)
S
SE
e. Realisation Expenses (or cost of absorption) paid by old company

AS
Realisation A/c -------------Dr.

CL
To Bank A/c
(Being Realisation Expenses paid)
A
TI
f. Purchase Consideration due

O
New Company A/c ---------------Dr.

AL
To Realisation A/c
BH
(Being Purchase Consideration due)
g. P/L (Deficit Balance), Preliminary expenses are to be closed

Equity Share holder A/c ---------Dr.
To Profit & Loss A/c
To Preliminary expenses A/c
(Being P/L (Deficit Balance), Preliminary expenses transferred to equity shareholders Account)

h. Reserve A/c ---------------Dr.
Equity Share Capital A/c ------------------Dr.
To Equity Share holder A/c
(Being Reserves, Equity Share Capital A/c transferred to equity shareholders Account)
i. Preference Share Capital A/c ---------------------Dr.

Realisation A/c ----------------Dr. (Extra Payment)
To Preference Shareholder A/c
To Realisation A/c (for short payment)
(Being Preference Share Capital A/c transferred to Preference shareholders Account)
j. Realisation A/c --------------------Dr.

To Equity Shareholder A/c
(Being Realisation Profit transferred to equity shareholders Account)
9)
k. Equity Shareholder --------------------Dr.
6
To Realisation A/c
45
(Being Realisation Loss transferred to equity shareholders Account)
3 03
l. Purchase Consideration received: 88
Equity Shares in new company A/c -----------------Dr.
(9
Preference Shares in new company A/c -----------Dr.
Bank A/c ---------------------Dr.
S
SE
To New Company A/c

(Being Purchase Consideration received)
AS
CL
m. Preference Share holder A/c -------------Dr.

To Preference Shares in new company A/c
A
To Bank A/c
TI
(Being Payment made to Preference Shareholders)

O
AL
n. Payment to Equity Shareholders:

BH
Equity Shareholder A/c -------------------Dr.

To Equity Shares in new company A/c
To Bank A/c
(Being Payment made to Equity Shareholders)

1. Amalgamation [B.com General 3rd year 2020]
A Ltd. is absorbed by B Ltd., B. Ltd. agrees to make the following payments :
(a) Cash @ ₹ 5 per share for 10,000 shares of ₹ 10 each issued by A Ltd.
(b) Issue two shares of ₹ 20 each for every five shares held in A Ltd.
(c) Discharge ₹ 1,00,000 12% debenture of A Ltd. at 10% premium by issuing 13% debenture in
B Ltd. at par, and
(d) ₹ 20,000 cash to creditors of A Ltd. in final settlement of their account.
Determine the amount of purchase consideration as per AS-14 and pass the journal entry in the books
of B Ltd. (without narration)
9)
2. Amalgamation [B.com General 6th semester 2021, 2020]
6
45
Som Ltd. agreed to takeover Dove Ltd. on Apri. 1, 2021. The terms and conditions of takeover were as
03
follows :
(i)
3
Som Ltd. issued 56,000 equity shares of ₹ 100 each at a premium of ₹ 15 per share to the
88
equity shareholders of Dove Ltd.
(9
(ii) Cash payment of ₹ 39,000 was made to equity shareholders of Dove Ltd.
S
SE
(iii) 24,000 fully paid preference shares of ₹ 50 each issued at per to discharge the preference
AS
shareholders of Dove Ltd.

CL
(iv) The 8% Debentures of Dove Ltd. (₹ 78,000) converted into equivalent value of 9%
A
Debentures in Som Ltd.

TI
O
(v) The actual cost of liquidation of Dove Ltd. was ₹ 23,000. Liquidation cost is to be reimbursed
AL
by Som Ltd. to the extent of ₹ 15,000.

BH
You are required to :

1. Calculate the amount of Purchase Consideration as per the provisions of AS-14; and
2. Show necessary Journal entries in the books of Som Ltd. for discharge of Purchase
Consideration.

3. Amalgamation [B.com 2015 Honours]
On 31.03.21, Vihar Ltd. was absorbed by Vasant Ltd. by taking over all the assets and liabilities of the former
at book values. The purchase consideration was fixed at ₹ 4,00,000 to be discharged by ₹ 10 Equity Shares of
Vasant Ltd. Every shareholder will get two shares for every share held in the transferor company.
The Balance Sheets of both companies as at 31st March, 2021, were as follows:
Vasant Ltd. Vihar Ltd.
EQUITY & LIABILITY :
Shareholders Fund
Equity Share Capital of ₹ 10 9,00,000 2,00,000
General Reserve 1,80,000 50,000
Profit & Loss Account 20,502 12,900
Workmen Compensation Fund 12,000 9,000
Current Liabilities
Sundry Creditors 58,567 30,456
9)
Staff Provident Fund 10,200 4,000
6
Provision for taxation 12,300 5,000
45
Total 11,93,569 3,11,356
03
ASSETS :
Non – Current Assets
3
Tangible Assets :
88
4,12,000 1,00,000
Plant & Machinery
(9
80,000 30,000
Furniture
S
Intangible Assets :
SE
2,00,000 60,000
Goodwill
AS
Current Assets : 2,65,500 60,000

Stock-in-trade
CL
2,21,200 46,000
Debtors - 700
A
Prepaid Insurance - 6,000

TI
Income tax refund claim 14,869 8,656

O
Cash & cash equivalent

AL
Total 11,93,569 3,11,356

BH
Absorption expenses amounting to ₹ 1,000 were paid by Vasant Ltd.

You are required to:
(a) Prepare Realisation Account and Equity Shareholders’ Account in the books of Vihar Ltd. and
(b) Pass necessary journal entries in the books of Vasant Ltd.

4. Amalgamation [B.com Honours 3rd year 2021]
The Balance Sheets of Root Ltd. and Fruit Ltd. as on 31.03.2021 are given below:
Particulars Root Ltd. Fruit Ltd.
Amount Amount
I. Equity and Liability:
1. Shareholders’ Funds:
Equity Shares of 10 each 20,00,000 12,00,000
Reserves and Surplus 5,00,000 3,00,000
2. Non-Current Liabilities:
10% Debentures 6,00,000 4,00,000
9)
6
45
Short term Loan — 3,00,000
03
Trade Payable 2,50,000 1,50,000
TOTAL
3 33,50,000 23,50,000
88
II. Assets
(9
1. Non-Current Assets:
S
Property, Plant and Equipment 10,00,000 9,00,000

SE
Intangible Assets 12,00,000 8,00,000

AS
2. Current Assets:
CL
Inventory 5,15,000 4,00,000

A
Trade Receivables 4,00,000 2,20,000

TI
Cash and Cash Equivalents 2,35,000 30,000

O
33,50,000 23,50,000
AL
The companies decide to amalgamate on 01.04.2021 and form Flower Ltd. on the following terms:
BH
(a) All Assets and Current Liabilities of the old companies are taken over by the Flower Ltd. The
net worths of Root Ltd. and Fruit Ltd. have been determined at ₹ 36 lakhs and ₹ 18 lakhs
respectively.
(b) The purchase considerations have been discharged by issuing sufficient numbers of Equity
Shares of ₹ 10 each at a premium of ₹ 50 each.
Show the Journal Entries in the books of Flower Ltd. and the Opening Balance Sheet of Flower Ltd.

5. Amalgamation [B.com Honours 3rd year 2020]
X Ltd. is absorbed by Y Ltd. on 31.03.2021 on which date the Balance Sheet of X.Ltd. was
summarized as follows:
Particulars Notes X.Ltd

No ₹
I. Equity and Liabilities
1. Shareholders’ Fund
(a) Equity Share Capital (₹ 10 each fully paid) 1,60,000
(b) Reserves and Surplus 1,44,000
2. Non-Current Liabilities
Long-term borrowings: 10% Debenture of ₹ 100 each 1,00,000
3. Current Liabilities
(a) Trade Payable 36,000
9)
TOTAL 4,40,000
6
II. Assets
45
1. Non-Current Assets
03
(a) Property, Plant and Equipment 3,12,000
(b) Non-Current Investment —
2. Current Assets
3
88
(a) Inventory 81,000
(9
(b) Trade Receivables 34,200
(c) Cash and Cash Equivalent 12,800
S
SE
TOTAL 4,40,000
AS
Notes to Balance Sheet (includes)

CL
Particulars Amount(₹ )
1. Reserves and Surplus:
A
General Reserves 64,000

TI
Profit & Loss Balance 80,000

O
1,44,000
AL
2. Property, Plant & Equipment:

BH
Plant and Machinery 72,000

3,12,000
The consideration payable to X.Ltd.:

(a) A cash payment of ₹ 110 for every Debenture in X.Ltd.
(b) An exchange of 3 equity shares of ₹ 5 each (quoted in the market at ₹ 6 each) in Y.Ltd. for
every share in X.Ltd.
(c) A further cash payment of ₹ 3 for each equiry share in X.Ltd.
You are required to prepare necessary ledger accounts in the books of X.Ltd. to close the books of
accounts and journal entries in the books of Y.Ltd. Expenses on liquidation were ₹ 6,000.

2019
CORPORATE ACCOUNTING – HONOURS
Paper : DSE 5.2A
Full Marks: 80
Group – A
Group A (5 Questions of 10 Marks each)
(3 Questions with Alternative):
Question 1 (Issue of shares):

Sunshine Ltd. issued 50,000 Equity shares of ₹ 10 each at a premium of 20% payable as ₹ 3 on application, ₹
6 on allotment (including premium) and the balance in one call after 3 months from allotment. Applications
were received for 80,000 equity shares. Allotment was made pro-rata to the applicants for 75,000 equity
shares, the remaining applications being rejected. Excess money on application (eligible for allotment) was
9)
adjusted with allotment. Sourav, to whom 400 equity were allotted, failed to pay the allotment and call money.
6
Rahul, who applied for 750 equity shares, failed to pay call money. These shares were subsequently forfeited
45
and all the shares of Sourav and 50% shares of Rahul were reissued at a discount of 10% to Sachin as fully
03
paid up. Show the necessary journal entries (narrations required) in the books of the company.
3
88
Question 2 (ESOP or Underwriting):
(9
Akash Ltd. granted on 1st April, 2016 options for 2000 shares of ₹ 10, to its employee at ₹ 60 each. The
S
market price on that date was ₹ 150 per shares.

SE
The vesting period was 3 years and the maximum exercise period was 6 months. Options for 200 shares were
AS
lapsed on 14.01.18. All the options were exercised on 30.09.2019 except for 100 shares. Show the journal
entries in the books of Akash Ltd. (Narration not required.)
CL
Or
A
Remo Ltd. issued a prospectus inviting applications for subscription in 10,00,000 equity shares of ₹ 10 each.
TI
The whole issue was fully underwritten by A, B, C and D as:

O
A – 30%; B – 25%; C – 35% and D – 10% (including firm underwriting of A and B)

AL
Applications were received for 8,00,000 shares of which marked applications (excluding firm) were as
BH
follows:
A – 1,80,000; B – 2,00,000; C – 2,03,000 and D – 1,67,000.
Firm applications were : A – 60,000 and B – 40,000 shares.
Determine the liability of each underwriter.

Question 3 (Buyback or Preference Shares):
The following information is available from the Balance Sheet of Everest Co. Ltd. as on 31.03.2019.
(a) Share Capital: ₹
Subscribed and fully paid up:
1,20,000 Equity Shares of ₹ 10 each. 12,00,000
12,00,000
(b) Reserves and Surplus: ₹
(iii) General Reserve 18,00,000
(iv) Securities Premium 6,00,000
24,00,000
(c) Total of secured and unsecured loan – ₹ 36,00,000
On the above date equity shares are bought back by the company to the extent possible as per section 68(2) of
the Companies Act, 2013, at premium of ₹ 40 per shares. You are required to give journal entries to give the
effect to buy-back and also show all workings.
6 9)
Or
45
The following balances are extracted from the books of Sun Ltd.:
10,000, 10% Preference Shares of ₹ 10 each, fully paid up; 6,000, 9% Preference Shares of ₹ 10 each, ₹ 9
03
paid up; 20,000 Equity Shares of ₹ 10 each, fully paid up; General Reserve ₹ 2,20,000; Profit & Loss account
₹ 80,000; Capital Reserve ₹ 20,000; Securities Premium ₹ 20,000 (both the categories of Preference shares
3
were issued prior to 2012.)
88
Preference Shares are to be redeemed at 10% premium. For this purpose 5,000 Equity Shares of ₹ 10 each are
(9
issued at 10% premium. Holders of 500, 10% Preference Shares are not traceable. Minimum use of free
reserve is to be made for the purpose of redemption of Preference Shares. Pass necessary Journal Entries.
S
SE
AS
Question 4 (Redemption of Debenture):

CL
The following balances as on 31.03.2018 were extracted from the books of P Ltd.:
₹
A
(i) 12% Debentures Account 4,00,000

TI
(ii) Debenture Sinking Fund Account 3,00,000

O
(iii) Debenture Sinking Fund Investment Account 3,00,000

AL
(represented by 10% ₹ 3,60,000 Secured Bonds)

BH
Annual contribution to the Sinking Fund was made on 31st March each year of ₹ 64,000. On 31st March,
2019 balance at bank was ₹ 1,60,000. On the same date interest on investment was received. Investments
were sold at 105% and the debentures were redeemed at par. You are required to prepare 12% Debenture
Account, Debenture Sinking Fund Account and Debenture Sinking Fund Investment Account for the year
ended 31.03.2019.

Question 5 (valuation of shares Or Valuation of Goodwill):
From the following particulars, calculate the value of an equity share under Earning Method and Dividend
Yield Method.
₹
5,000 Equity Shares of ₹ 100 each fully paid up 5,00,000
1,000, 8% Pref. Shares of ₹ 100 each fully paid up 1,00,000
EBDIT 3,00,000
Depreciation 50,000
Income Tax Rate 30%
Standard Price Earning ratio is 8 and dividend yield is 15%. During the last three years the company paid
equity dividend at 20%, 17% and 20% respectively.
OR
9)
From the following information, calculate the value of goodwill as on 31.12.2018:
6
Equity Share Capital ( ₹ 10) ₹ 6,00,000
45
Preference Share Capital ₹ 1,00,000
03
Reserve and Surplus ₹ 90,000
10% Debentures ₹ 90,000
Depreciation Fund
3 ₹ 50,000
88
Creditors ₹ 50,000
(9
Total assets include preliminary expenses ₹ 20,000
Market value of assets is 70,000 higher than the book value.
S
SE
Profits for last three years after 40% tax were ₹ 95,000, ₹ 90,000 and ₹ 1,10,000 respectively for the year 1,
2 and 3.
AS
Fair return on capital employed is estimated at 10%.

CL
Calculate the value of goodwill by capitalization of Average Profit on the basis of weighted Average Profit
(Weights are to be considered as 1, 2 and 3 for last 3 years respectively).
A
TI
O
AL
BH

Group B (1 Question of 15 marks)

(1 Question with alternative):
Question 6 (Amalgamation or Internal Reconstruction):
Star Ltd. and Lite Ltd. agreed to amalgamate on and from 1st April, 2018. A new company Starlite Ltd. was
formed to take over the business of the amalgamating companies. The Balance Sheet of Star Ltd. and Lite Ltd.
as on 31st March, 2018 are given below:
Particulars Note No. Star Ltd. Lite Ltd.

( ₹ in Lakhs) ( ₹ in Lakhs)
1. Equity and Liabilities:

Share Capital 1 1,100 950
Reserves and Surplus 2 420 330
9)
Long-term borrowings
6
(10% Debentures of ₹ 100 each) 60 30
45
Trade Payables 420 190
03
Total
2,000 1,500
3
88
(9
2. Assets:
Fixed Assets:
S
900 650
Tangible Assets
SE
150 50
Non-current Investments (Investments)
AS
350 250
Inventories (Stock)
300 350
CL
Trade Receivables
300 200
Cash and Cash equivalents (Cash and Bank)
A
Total 2,000 1,500

TI
O
Notes to Accounts:
AL
BH
Particulars Star Ltd. Lite Ltd.

( ₹ in lakhs) ( ₹ in lakhs)
1. Share Capital:
(a) Equity Share of ₹ 100 each fully paid up 800 750
(b) 12% Preference Shares of ₹ 100 each 300 200
1,100 950
(a) Revaluation Reserve 150 100
(b) General Reserve 170 150
(c) Investment Allowance Reserve 50 50
50 30
(d) Balance in statement of Profit and Loss
420 330

Additional Information:
(a) 10% Debentures holders of both companies are discharged by Starlite Ltd. issuing such number of its
15% Debentures of ₹ 100 each so as to maintain the same amount of interest earned before
amalgamation.
(b) Preference shareholder of old companies are issued equivalent number of 15% Preference Share of
Starlite Ltd. at a price of ₹ 150 per share (Face value ₹ 100)
(c) New company will issue 5 equity shares for each equity share of Star Ltd. and 4 Equity Shares for
each equity share of Lite Ltd. The shares are to be issued at ₹ 30 per share, having a face value of ₹
10 per shares.
(d) Investment Allowance Reserve is to be maintained for 4 more years.
(e) Fixed assets of Star Ltd. and Lite Ltd. are to be taken at 930 Lakhs and ₹ 620 lakhs respectively.
Calculate the amount of purchase consideration to be paid to each of the companies and prepare the balance
sheet of Starlite Ltd. after amalgamation.
OR
The following figures are available from the Balance Sheet of Jagaddhatri Ltd. as on 31.03.2019:
Liabilities ₹
9)
70,000 Equity Shares of ₹ 10 each 7,00,000
6
5,000 10% Preference Shares of ₹ 100 each 5,00,000
45
03
Accrued interest 36,000
3
88
Creditors 3,34,000
22,20,000
(9
Assets:
S
Land 4,00,000
SE
Plant 2,00,000
AS
Patent 40,000
CL
Goodwill 1,20,000
Investment 60,000
A
Debtors 4,00,000
TI
Stock 4,50,000
O
Profit & Loss Account 5,50,000

AL
22,20,000
BH
A scheme of re-organisation as approved by the Court was to take effect on 01.04.2019 by adopting the
following course:
(a) Preference Shares are to be written down to ₹ 75 each and Equity Shares to ₹ 1 each.
(b) Preference dividend were in arrear for 4 years. ¼th of the total arrear dividend is to be satisfied by
issue of Equity Shares of ₹ 1 each and 3/4th of the claim is to be waived.
(c) Accrued interest on Debentures are to be paid in cash.
(d) Investments are to be sold for ₹ 1,00,000.
(e) Provision for bad debts is to be considered ₹ 9,000.
(f) Plant is valued at ₹ 1,78,000.
(g) All the intangible assets are to be written off to maximum extent.
Show the Journal Entries including narration to give effect of the above transactions in the books of the
Company.

Question 7 (Company Final Accounts):
The Trial Balance of Khadim Ltd. as on 31.03.2019 is given below:
Debit ₹ Credit ₹
Land and Building 80,000 Equity Shares Capital (₹ 10 each) 2,40,000

Plant and Machinery 80,000 6% Pref. Share capital (₹ 100 each)
Furniture 6,400 Profit & Loss A/c as on 01.04.2018 40,000
Trade Debtors 72,000 Sales 6,000
Salaries and Wages 1,80,000 Trade Creditors 9,26,900
Investment (40% current) 40,000 provision for Income Tax 35,200
Patents 90,000 for the year 2017-2018
Repairs and Maintenance 2,000 General Reserve 9,400
Interest on Debenture 2,400 12% Debenture 10,700
Vehicles 12,000 Interest on Investment 40,000
Sundry Expenses 4,000 3,200
9)
Purchases 6,50,000
6
45
Dividend paid 12,000
Dividend Distribution Tax 2,400
03
Advance Tax for current year 20,000
Carriage Inward 2,800
3
88
Cash in Hand 3,600
(9
Cash at bank 6,000

S
Advance tax paid for the year –

SE
2017 – 2018 9,200

AS
Opening Stock 36,600

CL
13,11,400 13,11,400
A
Additional Information:
TI
(a) Stock at the end of the year 2018-19 valued at ₹ 46,000.

O
(b) Depreciation is to be provided on the diminishing values of assets as vehicles @ 20%; Building @ 5%;
AL
Machinery @ 15% and furniture @ 10%. Land and Buildings include ₹ 16,000 as cost of land.
BH
(c) 1/10th of value of patent is to be written off.

(d) The final assessment for 2017-18 has been complete and Income Tax Authority has made a gross
demand of ₹ 9,600.
(e) Income Tax Rate for the current year is to be taken 30%.
(f) The company resolves to transfer ₹ 5,000 to the General Reserve.
(g) Debentures were issued three years ago.
Prepare (i) Statement of Profit and Loss for the year ended 31.03.2019 and (ii) a Balance Sheet on that date.
[Note no 1. Property, Plant & Equipment; 2. Reserve & Surpluses are to be shown.]

CORPORATE ACCOUNTING – 2019 GENERAL
Group A (5 Questions of 10 Marks each) (3 Questions with Alternative):
Question 1 (Issue of Shares):
The directors of KPL Industries Ltd. have invited application for 72,000 Equity Shares of ₹ 10 each to be issued
at 20% premium. The money payable on shares is as follows:
01.05.18: On application ₹ 2
01.06.18: On allotment ₹ 5 (including premium of ₹ 2)
01.01.19: First and Final Call ₹ 5
Applications were received for 90,000 shares and allotment was made pro-rata to the applicants. All shareholders
are paid their dues within the due time except Mr. Ranjit, to whom 3,600 shares were allotted, failed to pay the
allotment and call money. His shares are forfeited fulfilling the statutory provisions.
Subsequently these shares are re-issued to Animesh as fully paid shares at ₹ 8 per share on 01.03.19.
Show the necessary journal entries (including cash transaction)
Question 2 (Underwriting or Bonus Shares):
9)
Zenith Ltd., issued 3,00,000 shares of ₹ 10 each at a premium of ₹ 2. The entire issue was underwriting by X, Y
6
45
and Z in the ratio of 3:2:1. Their firm underwriting was as follows:
03
The total subscription excluding firm underwriting & including marked application were for 1,60,000 shares.
3
Marked application received were as follows: 88
(9
The underwriting contract provided that credit for unmarked applications to be given to the underwriters in
proportion to the shares underwritten and benefit of firm underwriting is to be given to all Underwriters.
S
SE
You are required to compute the underwriter’s liability in number of shares.

AS
Or
(a) Following is the extracts of Balance sheet of BPA Limited as on 31.03.19:
CL
Share capital:
A
12,000, 12% preference shares of ₹ 10 each fully paid ₹ 1,20,000

TI
80,000 Equity Shares of ₹ 10 each fully paid ₹ 8,00,000

O
Reserve and Surplus

AL

BH

Revaluation Reserve ₹ 1,50,000
Profit and loss balance (Cr.) ₹ 3,00,000
Company has decided in its General Meeting to capitalize its reserve by issue of 1 fully paid bonus share
for every 2 equity shares held after fulfilling the legal formalities. Pass the journal entries to give the effect
of the above decision.
(b) On 01.04.17 Zed Pharmaceuticals Ltd. had granted 2,000 shares to the employees under stock option
scheme at ₹ 80 (Face value ₹ 10; Market value ₹ 120). The company allowed 2 years for vesting the
option and 1 year maximum exercise period. Employees exercised all the option on 31.12.19. Show
necessary journal entries for the above transactions.

Question 3 (Preference shares or Buyback):
The Balance Sheet of Gyan Ltd. as on 31.03.2019 is an follows:
Equity and Liabilities Amount ( ₹ )
Shareholder’s fund
(c) Shareholders’ fund
Equity Share Capital of ₹ 10 each fully paid 2,00,000
10% Preference Share Capital of ₹ 100 each fully paid 3,00,000
(d) Reserve and Surplus
Current Liabilities
Trade Payable 80,000
11,00,000
Assets Amount ( ₹ )
9)
Non-current investment
6
45
(c) Property Plant and equipment - tangible 5,00,000
(d) Non-current investment 3,00,000
03
Current Assets
Cash and cash equivalent
3 3,00,000
88
11,00,000
(9
In the board meeting it was decided

S
(i) To Sell investment at a profit of ₹ 10,000.

SE
(ii) To redeem the Preference Shares at 10% premium.

AS
(iii) Utilize the reserve and profit and loss balance after maintaining balance in Profit and Loss
Account ₹ 3,00,000 for redemption.
CL
(iv) To issue minimum number of equity shares of ₹ 10 each for the purpose of redemption.
You are requirement to pass necessary journal entries to record the above transactions.
A
Or
TI
The Balance Sheet of Progyan Ltd. as on 31.03.19 is as follows

O
Equity and Liabilities Amount ( ₹ )

AL
Shareholders’ fund
BH
(a) Share Capital

2,50,000 equity share of ₹ 10 each fully paid 25,00,000
2,000 10% Preference Share of ₹ 100 each fully paid 2,00,000
Current Liabilities
Trade Payable 15,00,000
92,00,000

Assets Amount ( ₹ )
Non-Current Assets
(a) Property Plant and Equipment - tangible 47,00,000
(b) Non – current Investment 30,00,000
Current Assets
Cash and Cash equivalent 15,00,000
92,00,000
The Company passed a resolution
(a) To buy back 20% of its equity capital @ ₹ 50 per shares.
(b) To sell all of its investment for ₹ 29,00,000.
You are required to pass the necessary journal entries and prepare the Balance Sheet.
Question 4 (Redemption of Debenture):
The following balances appeared in the books of Birla Ltd. as on 31.03.2018:
13% Debenture account ₹ 7,00,000
Debenture Redemption Fund Account ₹ 5,00,000
9)
13% Debenture redemption Fund Investment Account (Nominal Cost) ₹ 5,00,000
6
45
The annual contribution to the Debenture Redemption Fund was ₹ 7,00,000 and redeemed the debentures on
31.03.2019.
03
Prepare 13% Debenture Account, Debenture Redemption Fund Account and Debenture Redemption Fund
Investment Account up to 31.03.2019.
3
88
Question 5 (Valuation of Goodwill or Valuation of Shares):
Following information is extracted from the records of XYZ Ltd. Calculate the value of Goodwill as on
(9
31.03.2019:
S
• Equity Share Capital (₹ 10) ₹ 8,00,000

SE
• 11% Pref. Shares Capital ₹ 2,00,000

AS
• Reserve and Surplus ₹ 90,000

• 12% Debentures ₹ 1,00,000
CL
• Creditors ₹ 70,000
• Non-trade investment ₹ 80,000
A
• Profits for last three years before tax were: 2016-17: ₹ 1,60,000; 2017-18: ₹ 2,20,000 and 2018-19:
TI
₹ 2,40,000 respectively.
O
• Non-trade income of ₹ 6,400 (before tax) was included on an average for each of these years.
AL
• Tax rate 40%

BH
• Fair return on Capital Employed in this type of business is estimated at 12%

• Goodwill is to be valued on the basis of 4 years purchase of Super Profit. (Take simple average profit.)
Or
The following particulars are available in relation to Chamling Ltd:
• Equity Share Capital: 5,000 Equity Shares of ₹ 20 each.
• Preference Share Capital: 1,000. 8% Preference Shares of ₹ 100 each
• Total assets (Market value ₹ 3,00,000) ₹ 2,50,000.
• Current Liabilities ₹ 18,000
• Average trading Profit after tax ₹ 40,000
• Amount transfer to General Reserve 15%
• Normal rate of return on equity shareholders in market 10%.

Calculate:
(a) Intrinsic value per equity share
(b) Yield value of equity share
(c) Fair value of share

Question 6 (Company Final Account):
Following is the Trial Balance of JK Limited as on 31.03.2019.
Particulars Dr. ( ₹ ) Particulars Cr. ( ₹ )
Machinery 2,00,000 Equity Share Capital (₹ 10 each)
2,00,000
Furniture 1,00,000 Creditors 50,000
9)
Land 3,00,000 Sales 8,70,000
6
12% Investment (non- 1,30,000 Bills Payable 25,000
45
current)
03
(Purchased 01.04.18 Nominal Interest Received 10,400
Value ₹ 1,20,000)
3
88
Debtors 30,000 Surplus balance (01.04.18) 87,600
(9
Purchases 5,00,000 10% Debentures 1,00,000
S
Stock (01.04.18) 40,000 Bank Overdraft 15,000

SE
Salaries 35,000 Provision for Depreciation

Rent 15,000 - On Machinery : 40,000
AS
General administration 1,00,000 - On Furniture : 20,000 60,000

CL
expenses
Cash 2,000 Bad debt recovery 1,500
A
Bank 20,000
TI
Debenture Interest 10,000

O
Bad debts 2,500

AL
14,94,500 14,94,500
You are required to prepare the Statement of Profit and Loss for the year ended 31.03.19 and the Balance
BH
Sheet as on that date after considering the following in the books of JK Ltd.
(a) Unsold stock on 31.03.19 at cost ₹ 20,000.
(b) Depreciation to be charged on Machinery @ 10% and on Furniture @ 5% p.a. on diminishing Balance
Method.
(c) Rate of Income Tax is 30% (ignore surcharge and cess).
(d) 10% profit transferred to General Reserve.
(e) Salaries outstanding ₹ 1,500.
Ignore corporate dividend tax.

Question 7 (Amalgamation or Internal Reconstruction):
(a) What do you understand by Purchase Consideration as per AS-14?
(b) Sun Ltd. agreed to take over Moon Ltd. on Apr. 1, 2019. The terms and conditions of take over were as
follows:
• Sun Ltd. issued 56,000 equity shares of ₹ 100 each at a premium of ₹ 15 per share to the equity
shareholder of Moon Ltd.
• Cash payment of ₹ 39,000 was made to equity shareholders of Moon Ltd.
• 24,000 fully paid preference share of ₹ 50 each issued at par to discharge the preference
shareholders of Moon Ltd;
• The 8% Debentures of Moon Ltd. (₹ 78,000) converted into equivalent value of 9% Debentures in
Sun Ltd.;
• The actual cost of liquidation of Moon Ltd. was ₹ 23,000. Liquidation cost is to be reimbursed by
sun Ltd to the extent of ₹ 15,000.
You are required to:
(i) Calculate the amount purchase consideration as per the provisions of AS-14; and
9)
(ii) Pass Journal Entry relating to discharge of purchase consideration in books of Sun Ltd.
6
45
Or
Following is the Balance Sheet of B Ltd. as on 31.03.2019 (Notes of Balance Sheet includes)
03
Particulars Note ₹ Particulars ₹
3
No. 88
I. EQUITY AND LIABILITIES 1. Share Capital
1. Shareholders’ funds 3,000, 5% Pref. share of
(9
₹ 100 each 3,00,000

S
(a) Share capital 1 11,00,000 8,000 Equity shares of ₹ 100

SE
each 8,00,000
AS
(b) Reserve and surplus

P/L balance (2,30,000) 11,00,000
CL
2. Non-current liabilities
Long-term borrowing: 2. Tangible Assets
A
Secured Loan
TI
50,000 Land and Building 4,50,000

3. Current Liabilities Plant and Machinery 2,50,000
O
Trade payable (Creditors) 1,25,000

AL
Total 10,45,000 7,00,000

BH
II. Assets 3. Intangible Assets

1. Non-Current Assets Goodwill 1,50,000
Property, Plant & Equipment Patents 45,000
(a) Tangible Assets 2 7,00,000 1,95,000
(b) Intangible Assets 3 1,95,000
2. Current Assets 4. Cash and Cash Equivalent
(a) Inventories 1,35,000 Bank Overdraft 75,000
(b) Trade Receivables: Debtors 90,000
(c) Cash and Cash equivalent 4 (75,000)
Total 10,45,000

The Company undertook the following scheme of reconstruction:
(a) Equity Shares were to be reduced to shares of ₹ 50 each fully paid up.
(b) Preference share were to be converted into 7% Preference Shares of ₹ 70 each fully paid up.
(c) Sundry Creditors agreed to give up 1/5th of their claims provided they were paid off immediately.
(d) 50,000 equity share of ₹ 50 each were to be issued for cash.
(e) Expenses of Reconstruction were to be ₹ 7,500.
(f) The company decided:
• To write off Goodwill, deficit balance of statement of Profit and Loss and Patents.
• To write down Plant and Machinery by ₹ 45,000 and Inventories by ₹ 20,000.
• To create a Provision for Doubtful Debts @ 5%.
Show journal entries giving effects of the scheme of reconstruction.
69)
45
3 03
88
(9
S
SE
AS
CL
A
TI
O
AL
BH

CORPORATE ACCOUNTING – 2020 HONOURS

Group A (Answer any 4 Questions) (4 x 10 = 40 Marks)
Question 1:
Ex Ltd. had ₹ 12,00,000 in Capital Redemption Reserve, ₹ 10,00,000 in Securities Premium and ₹
15,00,000 credit balance in its Statement of Profit & Loss. It issued 20000 bonus shares of ₹ 100 each
as fully paid at par and 5000 right shares of ₹ 100 each fully paid at ₹ 125 to its shareholders. A. Ltd.
received 1200 such bonus shares and entitled to 300 right shares, which it accepted.
Show necessary journal entries (without narrations) in the books of Ex Ltd. and in the books of A
Ltd. for the above.
Question 2:
X Ltd. issued 20,000 shares of ₹ 100 each at a premium of ₹ 10 per shares. The entire issue was
underwritten as follows :
A – 10000 shares, B – 6000 shares, C – 4000 shares.
9)
The firm underwriting was to be : A – 2000 shares, B – 1000 shares and C – 1000 shares. Shares
6
applied for were 18000 (including firm underwriting). Marked applications being, A – 7000 shares, B
45
– 2800 shares and C – 3200 shares.
03
Calculate the liability of the underwriters (in number of shares).
Question 3:
3
88
Following figures are available from the Balance Sheet of King Ltd. as on 31.03.2019 (in ₹.) :
₹
(9
Equity shares of ₹ 100 each, fully paid up 30,00,000

S

SE

AS
Balance in the statement of Profit & Loss (cr.) 10,00,000

CL

A
Cash and Bank 5,00,000

TI
The company decided to buy-back 6000 equity shares at ₹ 125 per shares. For this purpose it
O
decided to issue 2,000 10% Preference Shares of ₹ 100 each at 10% premium. It also sold 3/4 th of
AL
the investments @ 75% of the face value. 4

BH
Pass necessary journal entries in the books of King Ltd to give effect to the above (Narrations not
required).
Question 4:
From the following particulars of K. Ltd., calculate the value of equity share under (a) intrinsic value
method and (b) earnings-yield method.
Tangible assets ₹ 11,60,000; Goodwill ₹ 1,00,000; Current Assets ₹ 3,60,000; Discount on issue of
debentures ₹ 20,000; 5% Debentures ₹ 2,00,000; Current Liabilities ₹ 2,60,000.
The net profits after tax for three years were : 2017-18 ₹ 1,03,200; 2018-19 ₹ 1,04,000; 2019-20 ₹
1,03,300. It is the practice of the company to transfer 20% of the profit to Reserves. Normal rate of
return is 10%. Issued and paid up Equity Capital - 80000 Equity shares of ₹ 10 each fully paid-up.

Question 5:
The following balances appear in the books of A Ltd. as on 31.03.2019 :
₹
13% Debentures Account 14,00,000
Debenture Redemption Fund Account 10,00,000
13% Debenture Redemption Fund Investment Account 10,00,000
The annual contribution to the Debenture Redemption Fund was ₹ 1,40,000. The company sold its
investments for ₹ 14,00,000 and redeemed the debentures on 31.03.2020.
Prepare 13% Debentures Account, Debenture Redemption Fund Account and 13% Debenture
Redemption Fund Investment Account up to 31.03.2020.
Question 6:
Sunshine Ltd. granted options on 1st April, 2015 for 1500 shares of ₹ 10 each at ₹ 80 each, when the
market price was ₹ 160 each. The vesting period was 3 years. The maximum exercise period was 1
year. All the 1500 options were exercised by the employees on 31st October, 2018.
Show necessary journal entries to record the above transactions in the books of the company
9)
(Narrations required).
6
Question 7:
45
The capital structure of a company as on 31.03.2020 consisted of 20000 equity shares of ₹ 10 each
03
fully paid up and 1000, 8% Redeemable preference shares of ₹ 100 each fully paid up. Undistributed
reserves and surplus were as under :
3
General Reserve
88 ₹ 80,000
Balance in Statement of Profit & Loss ₹ 32,000
(9
Cash at Bank amounted to ₹ 98,000. Preference shares are to be redeemed at a premium of 10% and
for the purpose of redemption, the directors are empowered to make fresh issue of equity shares at
S
SE
par after utilizing the reserves and surplus subject to the condition that a sum of ₹ 25,000 shall be
retained in General Reserve.
AS
Pass necessary journal entries to give effect to the above arrangements (narration required) and also
CL
all relevant workings.

Question 8:
A
Calculate the value of goodwill under

TI
(a) 5 years’ purchase of Super Profit method and (b) Capitalization of Average Profit method from
O
the following information :

AL
(i) Capital employed as per last balance sheet ₹ 6,30,000

BH
(ii) Normal rate of profit 10%

(iii) Net profit before tax (tax rate 35%)
1st year ₹ 1,05,000 4th year ₹ 2,00,000
2nd year ₹ 1,45,000 5th year ₹ 1,50,000
3rd year ₹ 1,75,000
(iv) Non-trading income ₹ 5,000 and Interest on long-term borrowings ₹ 10,000 on an
averageincluded in the statement of Profit & Loss.
(v) Fixed assets revalued by ₹ 20,000 more than the balance sheet value.
Use simple average method for determining average profit and ignore depreciation on increased
value of fixed assets.


Question 9:
Care Ltd. invited applications for 10000 shares of ₹ 10 each at 10% premium payable as – on
application ₹ 4; on allotment ₹ 3 (including premium) and balance on one call. Applications were
received for 17000 shares and after rejecting applications for 1000 shares the company issued all the
shares on proportionate basis. All amount due was received except the following :
iii. Mr. A holding 500 shares failed to pay allotment and call money.
iv. Mr. B holding 400 shares failed to pay call money.
All these shares were forfeited after call. All forfeited shares were re-issued to Mr. C as fully paid @
₹ 8 per shares.
9)
Show necessary journal entries (including cash transactions) in the books of Care Ltd. (Narrations not
6
required)
45
03
Question 10:
3
(h) State the conditions to be satisfied as per AS 14 in case of amalgamation in the nature of
88
merger.
(9
(i) Distinguish between pooling of interest method and purchase method of accounting for
S
SE
amalgamation in the books of transferee company.

AS
CL
A
TI
O
AL
BH

Question 11:
The Balance Sheet of B. Ltd. as on 31.03.2019 is as below :
Particulars Amount
₹.
I. Equity and Liabilities :
1. Shareholders’ Funds :
(a) Share Capital :
(i) Equity share capital (₹ 10 each) 5,00,000
(ii) 7% Cumulative Preference share capital (₹ 100) 1,00,000
(i) Balance in statement of Profit and Loss (5,00,000)
2. Non-current Liabilities :
(a) Long-term Borrowings (8% Debentures) 1,00,000
3. Current Liabilities :
9)
(a) Trade Payables (Trade Creditors) 5,00,000
6
Total 7,00,000
45
II. Assets :
03
1. Non-current Assets :
3
(a) Fixed Assets :
88
(i) Tangible Assets :
(9
Buildings 1,00,000
S
Machinery 4,00,000
SE
(ii) Intangibles (Goodwill) 40,000

AS
2. Current Assets :
(a) Inventories (Stock) 60,000
CL
(b) Trade Receivables (Sundry Debtors) 90,000

(c) Cash and Cash equivalents (Bank) 10,000
A
TI
7,00,000
O
Note : Contingent liability for Arrear Preference Dividend for 3 years.

AL
A scheme of internal reconstruction is approved by the court in the following lines :

BH
(g) Paid up value of equity share capital is to be reduced to 10%;

(h) Preference shareholders are to be issued 8%, 7 Preference shares of ₹ 10 each in
exchange of each existing preference shares.
(i) Preference shareholders are to be issued similar preference share for one-third of
arrear dividend. The balance of arrear dividend are to be cancelled.
(j) 8% Debentureholders agreed to sacrifice 20% of their claim for increase of interest to
10%.
(k) Building is valued at ₹ 1,50,000.
(l) Losses and intangible assets are to be written off.
Pass necessary journal entries (without narration) giving effect to the above scheme and prepare a revised
Balance Sheet of the company.

Question 12:
Following is the Trial Balance of Zoom Ltd., a trading concern, as at 31.02.2020 :
Debit Balance ₹ Credit Balance ₹
Stock on 01.04.2019 1,86,000 Sales 11,90,000

Purchases 7,20,000 Return outward 10,000
Return Inward 12,000 10% Bank Loan 60,000
Wages 1,10,000 Sundry Creditors 50,000
Carriage Inward 5,000 Bills Payable 12,000
Sundry manufacturing expenses 18,000 Profit & Loss Balance (Cr.) 26,000
Interest on Bank loan 5,000 (01.04.2019)
Office salaries 18,000 General Reserve 12,000
Auditor’s fees 9,000 Securities Premium 24,000
9)
Directors’ remuneration 32,000 Share Capital 4,00,000
6
Freehold Premises 1,64,000
45
03
Patents 20,000
3
88
(9

S
SE
Cash and Bank 85,000

Advance Tax for 2019-20 83,000
AS
17,84,000 17,84,000
CL
A
You are required to prepare the Statement of Profit & Loss for the year ended 31.03.2020 and the Balance
TI
Sheet as at that date after taking into account the following :

O
(h) Stock on 31.03.2020 was valued at ₹ 1,25,000

AL
(i) Bank loan was taken on 01.04.2019.

BH
(j) Depreciation is to be provided on Plant and Machinery @ 20 % and on Furniture and Fittings
@10%.
(k) 1/4th of Patents is to be amortised.
(l) Provision for tax is to be maintained @ 30%
(m) 10% of profit for the year is to be transferred to General Reserve.
(n) Ignore tax on dividend.


Group A
(Answer any 4 Questions) (4 x 10 = 40 Marks)
Question 1:
Sky Ltd. granted 20,000 options at ₹ 50 each to its employees under Employees’ Stock Option Scheme.
The face value of each option was ₹ 10 and its market price at that time was ₹ 110. The vesting period
was two years. All the employees exercised their options fully. Show the journal entries in the books of
Sky Ltd.
Question 2:
The following underwriting took place for Pioneer Ltd., which invited applications for 10,000 shares of
9)
₹ 10 each :
6
45
X : 6,000 shares, Y : 2,500 shares, Z : 1,500 shares
03
In addition, there were firm underwriting as follows :
3
X : 800 shares Y : 300 shares Z : 1,000 shares 88
Total subscription including firm underwriting was 7,100 shares, and the forms included the following
(9
marked forms :
S
SE
X : 1,000 shares, Y : 2,000 shares, Z : 500 shares

AS
You are required to compute the underwriter’s liability in number of shares when the specific benefit of
CL
firm underwriting is to be given to the Underwriters.
Question 3:
A
TI
Petro Ltd. provides the following information as on 31.03.2020 :

O
Particulars ₹
AL
1,20,000 equity shares of ₹ 10 each fully paid 12,00,000

BH
Capital Redemption Reserve 3,00,000
Plant Revaluation Reserve 40,000

Development Rebate Reserve 4,60,000
Investment Allowance Reserve 5,00,000

On 01.04.2020, the company decided to issue Bonus shares at par to its shareholders at the rate of 1
share for every 2 shares held and right shares at the rate of 1 share for every 4 shares held at ₹ 14 per
shares.
Show necessary Journal entries in the books of Petro Ltd. to give effect to above transactions.
Question 4:
The Summarised Balance Sheet of Green Private Ltd. as at 31.03.2020 is given below :
Particulars ₹
Share Capital : Equity shares of ₹ 10 each 40,000

Reserves and surplus 24,000
Long-term borrowings : 5% Debentures 10,000
9)
Creditors 10,450
6
Tangible assets
45
33,900
4% Investment (Face value ₹ 8,000) 7,200
03
Inventories 16,000
3
88
Debtors 19,350
(9
Cash and bank 8,000
S
The net earnings for the last three years were as follows :
SE
Year ended 31.03.2018: ₹10,100; Year ended 31.03.2019: ₹ 10,850; Year ended 31.03.2020: ₹ 12,200.
AS
You are required to ascertain the value of goodwill at 3 years’ purchase of super profit (take simple
CL
average profit) assuming normal rate of return on capital employed at 10%. Ignore income tax.
A
TI
O
Question 5:
AL
The following information is related to Sylvan Ltd. as on 31.03.2020 : [Fig. in ₹]

BH
Building (Market value ₹ 9,13,000) 5,50,000 Trade payables 14,000

Inventories 60,000 Share Capital :
Trade receivables 1,24,000 15,000 Equity share of ₹ 10 1,50,000
each, fully paid
Cash at bank 1,42,000 10,000 Equity share of ₹ 10 70,000
each, ₹ 7 paid
8% Debenture 25,000
Calculate the value of each fully paid-up and partly paid up Equity shares.

Question 6:
The following balances appeared in the books of Kolkata Tubes Ltd. on 31.03.2020
8% Debentures ₹ 1,20,000
Sinking Fund (for redemption of debentures) ₹ 1,00,000
Sinking Fund Investment in 6% Govt. Bond (Nominal Value ₹ 1,10,000) ₹ 1,00,000
On 01.04.2020 all the investments were sold at 90% of nominal value and the debentures were
redeemed at par. Prepare 8% Debentures Account, Sinking Fund Account and Sinking Fund Investment
Account in the books of the company.
Question 7:
State the relevant provisions of the Companies Act, 2013 relating to redemption of Preference Shares.
6 9)
Question 8:
45
03
The following balances are included Balance Sheet of E. Ltd. as on 31st Mrach, 2020 :
3
88
(Amount) (₹)
(9
6,00,000 Equity Shares of ₹ 10 each fully paid 60,00,000
S
SE

AS
12% Debentures of ₹ 100 each 28,00,000

CL

On 1st April 2020, the shareholders of the company have approved the scheme of buyback of equity
A
TI
shares as under :
O
(d) 20 % of the equity shares would be bought back at ₹ 16 per shares.

AL
(e) Premium payable on buyback of shares should be met from the Securities Premium Account.
BH
(f) Investments would be sold for ₹ 7,80,000 (Book value being ₹ 7,40,000).
Pass journal entries to record the above transactions.


Question 9:
The directors of Finolex Ltd. have invited an application for 30,000 equity shares of ₹ 10 each to be
issued at 20% premium. The money payable on the shares are as follows :
On application : ₹ 6 per share (including premium of ₹ 2);
On allotment : ₹ 4 per share;
On call: Balance amount.
Applications were received for 40,000 shares and allotment was made pro-rata amongst the applicants.
All the shareholders paid their dues within the due time except Miss Ritika, applied for 400 shares,
9)
failed to pay the allotment money. Her shares were forfeited after the subsequent call.
6
45
200 forfeited shares were reissued as fully paid on payment of ₹ 8 per share to Miss Ankita.
03
Show the necessary journal entries (including cash transaction) in the books of Finolex Ltd.
3
88
(9
Question 10:
S
SE
The Trial Balance of Zee Ltd. as on 31.03.2020 is as below :

AS
Debit ₹ Credt ₹
CL
Stock on 01.04.2019 75,000 Share capital 1,00,000

(Equity shares of ₹ 10 each)
A
Purchases 2,40,000 General Reserve 20,500

TI
Wages 35,000 Sales 3,40,000

O
Carriage 900 Discount 3,000

AL
Furniture 17,000 Profit and Loss Balance 15,000

BH
Salaries 7,500 Creditors 25,000

Rent 10,000 Bills Payable 10,000
Administration expenses 12,000 10% Debentures 37,000
Plant and Machinery 70,000
Debtors 35,000
Bills receivable 5,000
Cash 8,000
Bank 15,000
Long-term investments 20,100
5,50,500 5,50,500

Prepare Statement of Profit and Loss for the year ended March 31, 2020 and Balance Sheet as at that
date considering, the following information :
(a) The authorised capital of the company is ₹ 2,00,000
(b) Stock as on 31 03.2020 ₹ 88,000
(c) Depreciate Plant & Machinery and Furniture at 10%
(d) The directors recommended :
(i) An equity dividend of 25%
(ii) Transfer 10% of net profit of the period of General Reserve
Ignore Corporate Divident Tax.
9)
Question 11:
6
45
(a) Mention the conditions that are to be satisfied (as per AS-14) to consider amalgamation in the
03
nature of merger.
3
(b) Som Ltd. agreed to takeover Dove Ltd. on Apri. 1, 2020. The terms and conditions of takeover
88
were as follows :
(9
(vi) Som Ltd. issued 56,000 equity shares of ₹ 100 each at a premium of ₹ 15 per share to the
S
SE
equity shareholders of Dove Ltd.

AS
(vii) Cash payment of ₹ 39,000 was made to equity shareholders of Dove Ltd.
CL
(viii) 24,000 fully paid preference shares of ₹ 50 each issued at per to discharge the
A
preference shareholders of Dove Ltd.

TI
O
(ix) The 8% Debentures of Dove Ltd. (₹ 78,000) converted into equivalent value of 9%
AL
Debentures in Som Ltd.

BH
(x) The actual cost of liquidation of Dove Ltd. was ₹ 23,000. Liquidation cost is to be
reimbursed by Som Ltd. to the extent of ₹ 15,000.
You are required to :

3. Calculate the amount of Purchase Consideration as per the provisions of AS-14; and
4. Show necessary Journal entries in the books of Som Ltd. for discharge of Purchase
Consideration.

Question 12:
Following balance were available from the Balance Sheet of Timtim Ltd. as at 31.03.2020 :
Amount
3,000 6% Preference shares of ₹ 100 each, fully paid up 3,00,000
45,000 Equity shares of ₹ 10 each, fully paid up 4,50,000
Profit and Loss Account Debit Balance (1,50,000)
Bills Payable 50,000
Goodwill 42,300
6 9)
Patent 18,000
45
Inventory 88,800
03
Debtors 1,50,900
3
88
Dividends on Preference Shares are in arrear for three years. The company passes a special resolution
(9
to reduce its capital in accordance with the following scheme and the same is duly sanctioned by the
S
Court :
SE
(g) Each 6% preference share is converted to 8%, Preference shares of ₹ 75 each, fully paid. The
AS
value of equity shares is brought down to ₹ 8 per share fully paid.

CL
(h) The arrears of dividend on preference shares are sacrificed by the preference shareholders.
A
TI
(i) Goodwill to be written off fully.

O
(j) Land & Building and Plant & Machinery are revalued at 135% and 80% of their respective book
AL
values.
BH
(k) Book debts worth ₹ 7,200 are to be treated as bad and hence to be written off.
(l) The balance of total capital reduction is to be utilised in writing down patents.
Give necessary Journal entries to give effect to the above.

CORPORATE ACCOUNTING – 2021 HONOURS

(Out of 8)
Question 1:
The Balance Sheet of X Ltd. reflected the following balances :
Equity shares of ₹ 10 each, ₹ 8 per share ₹ 8,00,000
(called up and paid up)
Securities Premium (fully realized) ₹ 50,000
Surplus in statement of Profit and Loss ₹ 1,60,000
Capital Reserve (fully realized in cash) ₹ 80,000
6 9)
The Board of Directors resolved the following :
45
(i) To make a call of ₹ 2 per share to the equity shareholders.
03
(ii) To issue three Bonus shares for every five equity shares held.
3
88
(iii) To utilise General Reserve as minimum as possible.
(iv) To issue 40000 Right shares of ₹ 10 each fully paid up at ₹ 13 per share to its equity
(9
shareholders.
S
Assuming that all call moneys were collected in due time and the right shares were duly taken up by the
SE
shareholders, pass necessary journal entries in the books of the company. [Narration not required]
AS
Question 2:
CL
P Ltd. granted option for 8000 equity shares on October 1, 2016 at ₹ 80 (Face value ₹ 10 each), when the
market price was ₹ 70. The vesting period was 2½ years. The maximum exercise period was 1 year.
A
All the options were exercised by the employees on 30.06.2019.

TI
Show necessary journal entries to record the above transactions in the books of the company [Narrations
O
required].
AL
Question 3:
BH
A Ltd. has authorized capital of ₹ 50,00,000 divided into 100000 equity shares of ₹ 50 each. The company
issued for subscription 50000 shares at a premium of ₹ 10 each. The entire issue was underwritten as follows :
X — 30000 shares (firm underwriting – 5000 shares)
Y — 15000 shares (firm underwriting – 2000 shares)
Z — 5000 shares (firm underwriting – 1000 shares)
Out of total issue, 45000 shares including firm underwriting, were subscribed. The following were the marked
forms including firm : X – 15600 shares; Y – 10400 shares and Z – 4000 shares.
Calculate the total liability (in number of shares) of each underwriter considering firm applications as
marked.

Question 4:
The following figures are available from the Balance Sheet of Blue Chip Ltd. as on 31.03.2020 :
₹
240000 equity shares of ₹ 10 each fully paid up 24,00,000
Non-Current Assets (Tangible) 72,00,000
Current Assets 72,00,000
The company intends to buy back 40000 equity shares at a premium of ₹ 30 per share.
State whether the company can do so and if yes, pass journal entries in the books of the company.
[Narration not required]
6 9)
Question 5:
45
The following balances appeared in the books of Syska Ltd. As on 01.04.2020 :
03
₹
3
13% Debentures Account 88 7,00,000
Debenture Redemption Fund Account 6,35,000
(9
Debenture Redemption Fund Investment
(Nominal Value = Cost) 6,35,000
S
SE
The company sold its investments for ₹ 7,50,000 and redeemed the debentures at par on 01.04.2020. Prepare
13% Debentures Account, Debenture Redemption Fund Account and Debenture Redemption Fund Investment
AS
Account in the books of the company.

CL
Question 6:
A
The Capital structure of White Ltd. is given below:

TI
₹
O
Equity share capital (₹ 100 each) 18,00,000

AL
12% Pref. Share Capital (₹ 10 each) 9,00,000

BH

13% Term Loan 24,00,000
Reserves and Surplus 6,00,000
The average profit of the company before payment of interest and income tax is ₹ 14,00,000. The income tax rate
is 25%. Calculate the value of equity shares of the company assuming Price-Earning Ratio is 10.

Question 7:
The Capital and Reserves & Surpluses of ABC Ltd. as on 31.03.2021 was as follows (in ₹ ) :
10000 Equity Shares of ₹ 10 each 1,00,000
1000 10% Preference Shares of ₹ 100 each 1,00,000
Less Calls in arrear (on 100 shares @ ₹ 20) 2,000
98,000
400, 8% Preference Shares of ₹ 100 each. ₹ 60 called 24,000
Reserve Fund 45,000
Surplus in Statement of Profit & Loss 12,000 1,11,000
On 31.03.2021, investments standing in the books at ₹ 20,000 were sold for ₹ 18,000. On the same date it
was resolved to redeem the eligible preference shares at 10% premium by issuing sufficient equity shares at
9)
20% premium, subject to leaving a balance of ₹ 10,000 in Reserve Fund.
6
Give necessary journal entries assuming that all transactions were immediately given effect and payments were
45
made to the Preference Shareholders. (Narration not required)
03
Question 8:
3
Balance Sheet of G. Ltd. as on 31.03.2021 included the following :
88
₹ ₹
(9
Share Capital :
S
Equity Share Capital (₹ 10 each fully paid) 3,00,000

SE
10% Pref. Shares Capital 1,00,000

AS
Reserves and Surpluses : 4,00,000

CL

A
Statement of Profit & Loss 26,000

TI
80,000
O
Trade Payables 30,000

AL
Following information are also available :

BH
Assets include a non-trade investment at ₹ 15,000

Market Value of other assets is ₹ 40,000 more than the book value.
Profits before tax for last three years were : 2018-2019 : ₹ 58,000, 2019-2020 : ₹ 64,000 and
2020-2021 : ₹ 75,000
Fair Return on Capital Employed in this type of business is estimated at 10%. In
year 2018-2019, there was an accidental loss of ₹ 6,600.
Profits of 2019-2020 and 2020-2021 include ₹ 2,000 and ₹ 1,600 as income from non-trade investments.
You are required to calculate the value of Goodwill of G. Ltd. based on above using 4 years purchase of
super profit (assume applicable rate of income tax to be 20%)


(Out of 4):
Question 9:
Televista Ltd. invited applications for 20000 Equity Shares of ₹ 10 each at a premium of ₹ 2 per share,
payable ₹ 3 per share on application, ₹ 5 per share on allotment (including premium) and the balance on
first and final call. Applications for 27000 shares were received. It was decided :
(a) to refuse allotment to the applicants for 3000 shares;
(b) to allot in full to the applicants for 4000 shares;
(c) to allot the balance of the available shares pro-rata among the other applicants; and
(d) to utilise excess application money in part payment of allotment money.
6 9)
Mr. X holding 250 shares, to whom shares were allotted on pro-rata basis, failed to pay the amount due on
45
allotment and call. Mr. Y holding 150 shares to whom full allotment was made, also failed to pay allotment
03
and call money. These shares were forfeited after call. 150 forfeited shares of Mr. X and 100 forfeited shares
3
of Mr. Y were reissued at ₹ 9 per share as fully paid up to Mr. Z.
88
Show the necessary journal entries including cash transactions in the books of Televista Ltd. [Narrations not
(9
required]
S
SE
Question 10:
AS
Following are the items appearing in the Balance Sheet of X Ltd. as on 31.03.2020 :
CL
₹
Share Capital :
A
6000, 10% Preference shares of ₹ 100 each 6,00,000

TI
120000, Equity shares of ₹ 10 each 12,00,000

O
Reserve & Surplus :

AL

BH
Balance in Statement of Profit & Loss (8,50,000)

Non-current Liabilities
2000, 6% Debentures of ₹ 100 each 2,00,000
Current Liabilities
23,00,000
A scheme of reconstruction was adopted with a reduction of capital which was approved by the tribunal on
the following terms :
(a) Equity shares to be converted into same number of equity shares of such face value as to
reduce the paid up equity share capital by 30%.

(b) Preference shares to be converted into same number of preference shares of ₹ 60 each, fully
paid up.
(c) Balance of General Reserve to be utilised in full.
(d) Debentures to be converted into such number of 8% Debentures of ₹ 50 each as to
generate the same amount of interest as before.
(e) Property, Plant and equipment and inventories are to be reduced by ₹ 5,52,000 and ₹
38,000 respectively.
(f) Arrears of preference dividend to be waived in full. The deficit balance in the statements of
profit and loss to be written off in full.
(g) The following are to be given effect :
(i) Unrecorded debtors ₹ 3,34,000
(ii) Unrecorded creditors ₹ 80,000 to be paid in full
(iii) Reconstruction expenses ₹ 11,500 to be paid.
Pass necessary journal entries (without narration) and the resultant Balance sheet after the capital
reduction.
9)
Question 11:
6
45
BT Ltd. is absorbed by the CT Ltd. on 01.04.2021, on which date the assets and liabilities of BT Ltd. were as
03
follows :
Amount (₹ )
3
I. Equity and Liability :
88
1. Shareholder’s Fund :
(9
(a) Equity Share Capital (₹ 10 each fully paid) 80,000

S

SE

AS
Surplus Balance in Statement of Profit and Loss 32,000

72,000
CL
2. Non-current Liabilities : 10% Debentures (100 each) 50,000

A
3. Current Liabilities : Trade Payable 13,000

TI
Total 2,15,000
O
The consideration payable by CT Ltd. was :

AL
(a) A cash payment of ₹ 105 for every debenture in BT Ltd.

BH
(b) Exchange of 3 shares in CT Ltd. of ₹ 5 each (to be issued at ₹ 6 each) for every share in BT Ltd.
(c) A further payment in cash at ₹ 4 for each share in BT Ltd.
(d) The expenses of liquidation ₹ 3,000 were paid by the BT Ltd.
Calculate the purchase consideration, and show Realisation A/c, CT Ltd. A/c, Equity Share Holders A/c and
Bank A/c in the books of BT Ltd to close its books.

Question 12:
The following is the Trial Balance of Y. Ltd. as on 31.03.2020 :
Dr. ( ₹ ) Cr. ( ₹ )
Stock (01.04.2019) 1,60,000 —
Purchase and Sales 5,00,000 8,00,000
Purchase returns — 10,000
Carriage Inward 2,100 —
Wages 50,000 —
Salaries 20,000 —
Discount Received — 8,000
Furniture and Fittings 40,000 —
Rent 10,000 —
Sundry Expenses 16,500 —
9)
Balance in Profit & Loss Statement (01.04.2019) — 50,000
6
Paid up Capital — 2,00,000
45
Interim dividend 16,000 —
03
Dividend distribution tax on interim dividend 3,290 —
Debtors and Creditors 52,400 31,000
3
88
Plant and Machinery 2,46,000 —
General Reserve — 20,000
(9
Patents 8,000 —
S
SE
Bills Receivable and Payables 2,710 8,000

AS
11,27,000 11,27,000
Prepare a statement of Profit and Loss for the year ended on 31.03.2020 and a Balance Sheet as at
CL
that date as per schedule III of Companies Act. 2013 taking into consideration the following adjustments :
A
(a) Stock at on 31.03.2020 was ₹ 1,96,000

TI
(b) Depreciate Plant and Machinery @ 15%, Furniture and Fittings @ 10%
O
AL
(c) Make a provision for doubtful debts @ 10%

(d) Provision for tax is to be made @ 40% and the rate of Dividend distribution tax is 20.56%
BH
(e) Patents have a life of 5 years

(f) The directors proposed a dividend @ 10% for the year ended 31.03.2020 excluding Interim
dividend and decided to transfer ₹ 15,000 to General Reserve.


Question 1:
Facebook Ltd. granted 2,000 options at ₹ 60 each to its employees under Employees’ Stock Option
Scheme. The face value of each option was ₹ 10 and its market price at that time was ₹ 140. The vesting
period was 2½ years. All the employees exercised their options fully. Show the journal entries in the
books of Facebook Ltd.
Question 2:
On January 1, 2021, Moon Ltd. issued a prospectus inviting applications for subscription in 10,00,000
equity shares of ₹ 10 each. The whole issue was underwritten by A, B, C and D as under.
A : 30% B : 25% C : 35% D : 10%
The applications were received for 8,00,000 shares of which marked applications were as follows :
A : 1,80,000 B : 2,00,000 C : 2,03,000 D : 1,67,000
Find out the liability of the individual underwriter.
Question 3:
9)
Following is the Balance Sheet of M.N. Ltd. as on March 31, 2021 :
6
45
NOTES TO BALANCE SHEET
03
Particulars Note ` Particulars `
No.
3
88
I. EQUITY AND 1. Share capital :
(9
LIABILITIES Subscribed capital :

S
(1) Shareholders’ funds 5,000 Equity shares of ` 100 each 5,00,000

SE
(a) Share capital 1 6,00,000 1,000 8% Redeemable Pref.

AS
(b) Reserves & surplus 2 1,40,000 shares of ` 100 each 1,00,000

(2) Current liabilities 6,00,000
CL
(a) Trade payable :

A
Creditors 40,000 2. Reserves and surplus :

TI
Total 7,80,000 Capital Reserve (Realised in cash) 30,000

O
II. ASSETS Securities premium 10,000

AL
(1) Non-current assets General reserve 50,000

BH
Property, Plant and Balance in Statement of Profit

Equipment : and Loss 50,000
Tangible assets 3 5,30,000 1,40,000
(2) Current assets 3. Tangible assets :
(a) Inventories 30,000 Land & building 2,00,000
(b) Trade receivables : Plant & machinery 2,30,000
Debtors 80,000 Furniture & fixtures 1,00,000
(c) Cash and cash
equivalents : Bank 1,40,000
Total 7,80,000 5,30,000

The Directors decided to redeem the preference shares at a premium of 10% out of profits. Assuming the
preference shares were duly redeemed, pass the journal entries. (narrations not required)
Question 4:
Balance Sheet of Black Ltd. as on 31.03.2021 is as follows :
NOTES TO BALANCE SHEET (includes)

No.

LIABILITIES Subscribed :
(1) Shareholders’ funds Subscribed and Fully paid up
(a) Share capital 1 80,00,000 8,00,000 Equity shares of ` 10 each 80,00,000
(b) Reserves and surplus 2 36,80,000
9)
(2) Non-current liabilities 2. Reserves and surplus :
6
Long-term borrowings : Securities premium 25,00,000
45
6.5% Debentures 3,00,000 General reserve 7,00,000
03
(3) Current Liabilities Balance in SPL 4,80,000
Trade Payable :
3
88 36,80,000
Sundry creditors 2,53,000
(9
Total 1,22,33,000
II. ASSETS 3. Tangible assets :
S
(1) Non-current assets Land & building 30,00,000

SE
(a) Property, Plant and Machinery 45,00,000

AS
Equipment : Furniture 10,00,000

CL
Tangible assets 85,00,000

(b) Non-current 85,00,000
A
investment 10,80,000
TI
O
(2) Current assets

AL
(a) Trade receivables : 5,40,000

Sundry Debtors
BH
(b) Cash and cash

equivalents : Cash
and Bank 21,13,000
Total 1,22,33,000
On April 1, 2021 the company announced the buy-back of its 25% Equity shares at ₹ 20 per share. For that
purpose the Company sold its entire investments at ₹ 12,00,000 and issued 8,000, 10% Preference shares of ₹
100 each. The Company utilised 50% of the General Reserve, 100% of the surplus balance of Statement of
Profit and Loss and the rest was taken from the Securities Premium.
Show necessary journal entries (narrations not required).

Question 5:
From the following information, compute the value of Goodwill as per ‘Capitalisation of Average Profits method:
(a) Capital employed: ₹ 15,00,000
(b) Normal rate of profit: 10%
(c) Net profit before tax (Tax rate @ 30%)
Year ended 2020-21 2019-20 2018-19 2017-18 2016-17

Profit (₹ ) 2,75,000 3,00,000 2,60,000 2,80,000 2,20,000
(d) Non-trading income ₹ 10,000 and Debenture interest ₹ 20,000 on an average included in the Statement
of Profit and Loss.
Question 6:
The following particulars are available in relation to HOTELS Ltd.
(a) Capital:
9)
450, 6% Preference shares of ₹ 100 each, fully paid.
6
45
4,500 Equity shares of ₹ 10 each, fully paid.
03
(b) External Liabilities ₹ 7,500.
3
(c) Reserves and Surplus ₹ 3,500. 88
(d) The average normal profit (after taxation) earned every year by the company ₹ 8,505.
(9
(e) The normal profit earned on the market value of fully paid equity shares by the same
S
type of companies is 9%
SE
(f) Out of the total assets, assets worth ₹ 350 are fictitious.
AS
Ascertain the intrinsic value and earning capacity value of an equity share.
CL
Question 7:
A
TI
The share capital of M Ltd consists of 4,00,000 equity shares of ₹ 10 each fully paid.
O
The Ledger balances were as follows :

AL

BH

Surplus in Statement of Profit & Loss ₹ 10,00,000
The company has decided to issue bonus shares in the ratio of 4 : 1 to the existing shareholders utilising
Capital Redemption Reserve in full and balance from other eligible sources.
Show journal entries in the books of the company (narrations not required) .
Question 8:
State the conditions that are required to be fulfilled for an amalgamation to be considered as an
amalgamation in the nature of merger.


Question 9:
The directors of INOX Ltd. invited applications for issuing 60,000 equity shares at ₹ 10 each at a
premium of ₹ 6 per share. The amount was payable as follows :
On Application : ₹ 4 per share
On Allotment : ₹ 9 per share (including premium)
On First and Final Call : Balance Amount
Applications were received for 80,000 shares and the allotment was made on pro-rata basis. Ivy, a shareholder
holding 2,400 shares did not pay the allotment and call money and her shares were forfeited. All the forfeited
shares of Ivy were reissued at ₹ 9 per share fully paid up. Pass necessary journal entries for recording the
above transactions in the books of the company. (narrations not required)
Question 10
The following balance appeared in the books of X Ltd. as on 31.03.2020 :
9)
13% Debentures Account ₹ 7,00,000
6
Debenture Redemption Fund Account ₹ 5,00,000
45
13% Debenture Redemption Fund Investment Account (Nominal = Cost) ₹ 5,00,000
The annual contribution to the Debenture Redemption Fund was ₹ 70,000. The company sold its investments for
03
₹ 7,00,000 and redeemed the debentures on 31.03.2021. Prepare 13% Debentures Account, Debenture
3
Redemption Fund Account and Debenture Redemption Fund Investment Account upto 31.03.2021.
88
Question 12:
(9
The trial balance of P Ltd. as on 31.03.2020 is as follows :
S
Debit Balances ₹ Credit Balances ₹

SE
Stock (01.04.2019) 1,50,000 Share Capital 2,00,000

AS
Purchases 4,80,000 (Equity shares of ₹ 10 each)

Wages 70,000 Sales 6.80,000
CL
Carriage 1,800 Discount 6,000

Furniture 34,000 Balance of Statement of
A
Profit & Loss

TI
Salaries 15,000 30,000

Creditors
O
Rent 20,000 Bills Payable 50,000

AL
Administration expenses 24,000 10% Debentures 20,000

Plant & Machinery 1,40,000 General Reserve 74,000
BH
Debtors 70,000 41,000

Bill Receivables 10,000
Cash 16,000
Bank 30,000
Long-term investments 40,200
11,01,000 11,01,000
Prepare statement of Profit and Loss for the year ended on 31.03.2020 and Balance Sheet on that date
considering the following information :
(a) Stock as on 31.03.2020: ₹ 1,76,000
(b) Provide for Income tax @ 30%

(c) Depreciate Plant & Machinery and Furniture at 10%.
(d) On 31.03.2020, Outstanding rent amounted to ₹ 1,600 and salaries ₹ 1,800.
(e) 10% of the net profit is transferred to Reserves.
Question 11:
Following is the Balance Sheet of Honey Ltd. as on 31.03.2021 :
Balance Sheet of Honey Ltd. as at Mar. 31, 2021 Notes to Balance Sheet (includes)

No.
LIABILITIES Equity shares of ` 10 each
(1) Shareholders’ funds Fully paid 5,00,000
(a) Share capital 1 5,00,000
(b) Reserves and surplus: (1,00,000)
P/L Balance
9)
(2) Current liabilities
6
(a) Trade Payable :
45
Creditors 1,70,000
03
(b) Short-term provisions:
3
Provision for tax 10,000 88
Total 5,80,000
(9
II. ASSETS
S
(1) Non-current assets

SE
(a) Property, Plant &

AS
Equipment :
Trangible assets 2,70,000
CL
(2) Current assets

A
(a) Inventories 1,20,000

TI
(b) Trade receivables :

O
Debtors 1,70,000
AL
(c) Cash and cash

BH
equivalents 20,000
Total 5,80,000
A scheme of internal reconstruction was approved and the directors decided :

(a) to reduce the nominal value of shares by ₹ 6 per share.
(b) to write off the loss;
(c) to revalue the Fixed Assets at ₹ 1,90,000 and inventories at ₹ 91,000.
(d) to provide 30% on Debtors for doubtful debts.
Pass the journal entries (narrations not required) to record the above transactions and prepare the
revised Balance Sheet after implementation of the scheme.

GROUP: ACCOUNTING & FINANCE:

5th Semester: HONS & PASS
Subject's Name Marks Course fees:
Corporate Accounting (All) 100 2,500
Taxation II (All) 100 2,500
Auditing & Assurance (All) 100 1,500
Advance Business Mathematics (Hons) 50 1,500
Macro Economics (Hons) 50 1,500
Acct + Tax 200 4,500
All Subjects (Pass) 300 6,000
9)
All Subjects (Hons) 400 7,500
6
45
• Admission going on throughout the year but join early to finish early and then do
03
free revision till exams.
3
88
(9
• Online, offline & recorded all options. Offline classes at Girish Park.
S
SE
• Morning/evening, day batches.

AS
CL
• All subjects by specialised & experienced faculty team.

A
TI
• Group Discount: ₹ 500, if Join for All Subjects

O
AL
BH
• Gpay or Phonepe or Paytm at 8820696761/9883034569 and send the screenshot.

5th Semester Accounts Notes CU

Uploaded by

Copyright:

Available Formats

5th Semester Accounts Notes CU

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

5th Semester Accounts Notes CU

Uploaded by

Copyright:

Available Formats

(9883034569/9330960172)

Corporate Accounting [For B.com 5th Semester ALL]

Buy Back of Securities (Preference share in option) 53 – 60

4. Redemption of debenture (10 Marks) (No Option) 61 – 68

5. Valuation (10 Marks)

Valuation of Goodwill (valuation of shares in option) 69 – 75

Valuation of Shares (Valuation of goodwill in option) 76 – 81

6. Company Final Accounts (15 Marks) (No Option) 82 –100

7. Company Merger And Reconstruction (15 Marks)

Book Price: ₹ 150

CORPORATE ACCOUNTING – HONS & PASS

Question 2 (Underwriting Or ESOP/Bonus Share & Right share): (Practical)

Question 3 (Buyback or Preference Shares): (Practical)

Question 4 (Redemption of Debenture): (Practical)

Question 5 (Valuation of shares Or Valuation of Goodwill): (Practical)

Question pattern of 2019 will be followed.

5th Semester: HONS & PASS

Subject's Name Marks Course fees:

Corporate Accounting (All) 100 2,500

Taxation II (All) 100 2,500

Auditing & Assurance (All) 100 1,500

Unit – 4: Redemption of debenture [10 Marks] [No option]

Unit – 5: Valuation [10 Marks] [1 Question with option]

Unit – 6: Company Merger And Reconstruction [1 Question of 15 Marks] [with option]

- 1 –Admission Going on for Regular/Crash Course for B.com. Call

Issue of Shares [10 Marks]

2. Over Subscription of Shares

(b) Partial or pro-rata allotment

(c) Combination of pro-rata allotment and rejection

3. Under Subscription of Shares

shares are said to be under subscribed.

- 2 –Admission Going on for Regular/Crash Course for B.com. Call

is pro-rata allotment in proportion of 2 : 3.

8. Issue of Shares for Consideration other than Cash

9. Issue of Shares at a Discount

- 3 –Admission Going on for Regular/Crash Course for B.com. Call

(b) For Transfer of Application Money

(Application money returned on rejected application for ___shares)

(d) For Amount Due on Allotment

Equity Share Allotment A/c……… Dr.

To Equity Share Capital A/c

To Securites Premium A/c

board’s resolution no. …. Dated………)

(e) For Adjustment of Excess Application Money

- 4 –Admission Going on for Regular/Crash Course for B.com. Call

(g) For 1st Call Amount Due

(1st Call money received)

(i) For Final Call Amount Due

Equity Share Final Call A/c….. Dr.

To Equity Share Capital A/c

(j) For Receipt of Final Call Amount

- 5 –Admission Going on for Regular/Crash Course for B.com. Call

(Being forfeiture of…… shares as per board’s resolution no. …. Dated………)

(n) Re-issue of forfeited shares at par

Bank A/c ………. Dr

To Equity Share Capital A/c

(Being reissue of …… shares at par as per board’s resolution no. …. Dated………)

(o) Re-issue of forfeited shares at discount,

- 6 –Admission Going on for Regular/Crash Course for B.com. Call